Business Funding: Alternative Financial Programs And Alternative Financial Sources

by

Benjamein Moore

An alternative financial program is a plan offered by a commercial financial company that business owners turn to when they have been denied financial assistance by traditional lending institutions such as banks. Traditional financial agencies usually turn down business owners with high debt, previous financial difficulties, or needs for start-up capital. Commercial finance companies are willing to loan more than a borrower’s worth. However, these companies also charge higher interest rates because of their willingness to lend to high-risk individuals.

Commercial lenders offer a variety of alternative financial programs, such as loans against a business’s inventory, accounts receivables, equipment, and property. Loans against inventory or accounts receivables are intended as a means for a business to obtain a short-term cash flow. Equipment and property loans last anywhere from two to ten years, depending on the amount needed and the amount of collateral. Commercial lending companies also offer loans based on a business’s profitability, not its collateral. To be considered for one of these types of loans, a business owner must supply personal and business financial statements, tax returns, and other documentation. Creditors also take into account the value of the business’s assets. These loans range from two to ten years and can be completely or partially secured. In order to take advantage of the best alternative financial plan available, business owners must take into account the amount of money needed, the terms of repayment, and the value of their assets. An alternative financial source is an untraditional source for building capital for a business. Alternative financial sources are usually chosen when an individual has been denied by a bank’s strict requirements for start-up loans. Whether a business is in need of start-up capital or needs to increase its equity, there are many financial sources to choose from. One source is a factor, a company that buys a business owner’s account receivables instead of lending against them. The finances of the customers are more important than the individual’s financial stability. Factors calculate how much to give in advanced funds, and then collect that amount from the customers, which earns the factors a three to six percent profit every month. Once the entire balance is paid off, the factor subtracts the amount advanced and pays it back to the individual. Another alternative financial source are asset-based lenders. These are commercial and household lenders that loan advanced funds with traditional loan to value ratios. These companies usually require some type of collateral, such as accounts receivable, property, equipment, and vehicles. One alternative financial source that is not recommended to start-up business owners is a credit card. Using a credit card to fund a business could lead quickly to out-of-control debt, especially due to high interest rates. Credit cards should only be used to ease the purchasing process, and they should be paid off as quickly as possible.

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