Unconventional Financing for Unique Businesses (Like Yours!)

As a business owner, you probably started your business with the idea that you could do something unique and better than what everyone else was doing.

Yet, when you go to the bank for financing, they want you to fit into the same box that everyone else conforms to, right?

Nothing against banks, they are a great source of business funding, and should always be your first stop when you are looking for money to grow your business.

But what do you do when they tell you that you don’t qualify for a loan?

All too often, you either give up, ask your relatives for money, or fall into the clutches of the most expensive lenders out there whose ads you see online or who call you ten times a day.

There must be a better option, and fortunately there is, if you know where to look.

Today, I would like to highlight some of the unique options for business owners, and then get into more detail in later articles.

Unique Financing Options

“Bank” loans from non-bank lenders: most small business loans from banks are guaranteed by the Small Business Administration (SBA). What many business owners don’t know is that there are many non-bank lenders who are authorized to provide SBA loans. Oftentimes, these lenders can provide the same loans as a bank but have a bit more flexibility in their approval guidelines. We have been able to get many loans closed through these lenders after one or more banks have rejected them.

401(k)/IRA Rollover Funding:  did you know you can use the funds in your retirement plan to purchase or expand your business, without debt, tax-deferred and penalty-free?

Securities Backed Loans: A line of credit backed by securities held in an investment portfolio in which cash needs are acquired within 10 days without disrupting investments. The portfolio remains in your name, and you continue to receive all dividends and appreciation.

Real Estate Based Loans or Lines of Credit: often it is a challenge to qualify for a loan or line of credit based on the equity in your home or investment property when you are starting or expanding your business. Often called “hard money” loans, these are primarily based on the amount of equity you have in your real estate property rather than your qualifying income. While they are more expensive than a traditional mortgage or home equity line of credit, they are actually less expensive than many other forms of business credit and should be considered when looking at your business financing options.

Purchase Order and Invoice Financing: this is one of the oldest forms of business financing, going back thousands of years to ancient times. Also known as “factoring” this financing provides an excellent source of working capital that can keep up with a fast growing business and is among the most flexible options available to businesses that are B2B, that is, bill other businesses rather than retail customers. This is also a good option for newer businesses that do not yet qualify for a traditional bank line of credit or in which there is a credit challenge.

Small Business Lines of Credit: an interesting new option that is a kind of hybrid between a traditional line of credit and invoice financing. Unlike invoice financing, these can be used by B2C or retail businesses like restaurants, retail stores and others that do not invoice their customers.  These can be a great resource for businesses that are as new as six months, and can be a bridge to a more traditional line after they establish a greater history of revenues and time in business.

Merchant Card Advance Alternatives: MCA’s are the easiest to qualify for, most expensive form of business financing in the market, and unfortunately, also the most heavily advertised.    We work with a non-profit lender who has a unique program that is an answer to a real problem for many businesses who have fallen into the Merchant Card Advance “death spiral”.  Rather than daily repayments and short term loans than can be over 100% APR, this program features monthly payments, reasonable rates and terms as long as five years.

“Challenging Industries”: some industries are inherently risky from a banks perspective, and as a result, financing even for strong businesses can be a real challenge. Restaurants, retail, gas stations, construction contractors and others all face hurdles when looking for financing, yet there are lenders who are open to these businesses, and even specialize in them. Financing can range from SBA loans, to invoice financing, to real estate loans. Some industries seem to be on everyones “restricted list” however, like cannabis, gambling, and adult entertainment. At this time, those are still very difficult to finance.

Bottom Line: banks are always going to be an excellent source of business financing. But, when your unique business runs into a challenge obtaining financing, seek out the services of a specialist in alternative financing sources. You should also consider the services of the Small Business Development Center (SBDC) which can be an excellent no-cost resource for unbiased advice and referrals to responsible lenders who can help get you the funding to take your business to the next level.

If you need business financing and have run into challenges with your bank, please give us a call or email. We are specialists in this type of financing, and were named the Financial Services Champion of the Year for 2018 by the San Diego Regional office of the SBA. We look forward to helping your business get the financing you need to grow and prosper.