Application for a loan

Entrepreneurs of small enterprises may find it difficult to obtain funding to start their business. You can try the bank, but that can be a real challenge. If you know where to look, new avenues can open up which might be worth pursuing. Stephen Sheinbaum, founder and CEO of Merchant Cash & Capital, believes that there are quite a number of financing alternatives available still, despite the tight economy. If you have been turned down by the traditional financial institutions, don’t lose heart – although the interest rates may be slightly higher, there are still options available to you. The following tips, with the steps to realise them, may come in handy when you need funding.

Alternative Financing Options:

1. Begin at the beginning

Start at the bank when you need your first loan. You will have to know your business’s projected figures, assets and strong points, and have a business plan. Without these you are unlikely to be successful at securing funding.

2. Borrow against expected income

If the bank gives you a cold shoulder, consider obtaining money for orders received but not yet delivered; this provides a degree of security to the lender. If you have won a big contract, it will strengthen your case, as you will be able to make good on your promise of paying back the money.

3. Cash-in on accounts receivable

Should you have a customer who owes you a large sum, you may be able to borrow money against the owed amount. You will, however, have to prove that your debtor has a good payment history. The financial institution (or factor) will then lend you the money based on the creditworthiness of the debtor. This is called “factor financing”, and it happens much faster than an ordinary loan.

4. Lend me your peers

You could also apply online to a group of investors who have pooled their resources in order to get better interest rates from your loan than from a financial institution. The interest rate will rocket as the credit risk increases. This is called peer-to-peer lending.

5. Projected sales

Merchant cash advance could be a possibility as these companies, like Sheinbaum’s, provide funding based on your expected sales. When your sales start generating real income, you pay back a percentage of the income generated by the use of your customers’ credit and debit card purchases during the cash advance’s term. Bank statements and merchant processing statements may be required to proof your ability to repay the loan.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)