Growth is one of the biggest indicators of small business success. According to the Small Business Administration (SBA), more than 500,000 businesses had between 20 and 99 employees as of 2014. These established businesses are in the upper end of growth but have not yet met the threshold of being a medium business. In fact, 39 percent of growing companies between three to five years old and seeking more than $100,000 consider accessibility to capital their greatest concern.
Where can they turn for funding? These three alternative options may be worth considering.
Lines of Credit
Lines of credit provided by online lending platforms offer established businesses in all industries the flexibility and convenience of accessible capital.
In most cases, there are no fees to apply for a line of credit or annual costs to access funding. Small businesses don’t pay a thing to see for how much their business can qualify. Kabbage, an online lending platform, offers access to lines of credit up to $250,000, helping small to mid-market businesses access funding for operational costs and strategic investments like cash flow needs, purchasing specialized equipment, business expansions and launching high-growth marketing projects. There are also no obligations in how much a business is required to take. Companies can take the amount they need from the line of credit when they need it, with no hidden fees or pre-payment penalties.
Merchant Cash Advances
Some established businesses turn to a merchant cash advance (MCA) due to lower credit ratings, not having enough assets to provide as collateral, short-term financing needs or the flexible repayment terms.
An MCA is an advance on future credit card payments. The cash advance is decided upon by the funding company, with the specific amount being paid back in full plus fees and interest.
With merchant cash advances, borrowers pay a set percentage of their credit card sales and make payments every time they receive credit card payments from clients.
Invoice factoring is another funding option established businesses use in lieu of bank loans. Factoring is the process of selling accounts receivables to a financing company for immediate cash.
Factoring helps businesses receive cash much faster than waiting for clients to pay their invoices. The financing company, known as the “factor,” pays the business the majority of the invoice upfront. Once the business receives payment from the client, they send those funds to the factor. The factor then pays the remaining percentage to the business.
Factors are more concerned with the financial health of the business’s clients rather than the business itself. These companies collect directly from a company’s clients and customers, sometimes requiring payment history validation from the business.
A benefit of factoring is not assuming debt for money received; however, if clients are not credit worthy, you may not receive funding.