7 Alternatives Funding Options for Growing Small Businesses

Personal Loan up to 8 times your Salary

Personal Loan in UAE
  • Minimum Salary 5000 AED
  • EMI Tenure up to 48 Months
  • Lowest Interest Rates

Get personal loan at Lowest Interest Rate

  • Dubai
  • Abu Dhabi
  • Sharjah
  • Ras Al Khaimah
  • Ajman
  • Other
Whether you are just starting your business or you have already been in business for quite some while, as an owner of a small business, you are ought to face scenarios where you might require some immediate funding.

While a traditional loan funding might seem like the ideal go-to solution to the entrepreneurs out there to fund their business problems, the banks and financial institutions out there in the market may not always be interested in helping the owners of the small businesses.

Also, if your small business reaches the point where you are not able to meet the strict eligibility criteria set by the financial institutions and banks, the options that are likely to cross your mind are maxing out the limits on your credit cards, selling any personal assets you might have, stealing some funds from the retirement fund set up, or borrowing some funds as a loan against your office or home.

Definitely, these options are a good solution in themselves, but there are also numerous alternative funding options that you can opt for your small business without having to put any of your property on the line or by having to tap into the savings fund you have.

If you are ready to give an alternative financing option a try, here are some options that you might be able to use for your business needs:

Asset-Based Lending

This financing solution requires using the assets that you have and you intend to buy in the form of collateral for the loan amount that you borrow. In other terms, the asset financing company will remain the owner of your assets up until you have made the last payment.

With asset-based financing, you can choose either of the two purchases – hire or lease. The former type of financing will include the asset on your balance sheet, whereas, the latter type will keep the asset off your balance sheet till the amount has been repaid in full along with the purchase fee involved.

Lines of Credit

This solution for funding your business helps in paying any short-term expenses involved such as expanding your inventory, purchasing pieces of equipment, covering the operating costs, among other things. Lines of credit have a similar function like credit cards – you are allowed to access a fixed amount of funds that can be used by you as see fit. Regular payments are honored by the financing company and you can withdraw the funds you wish. The best part is that the interest is charged only on the funds that are withdrawn by you.

However, in some cases, the interest rates on lines of credit might be slightly higher than the prime lending rates, but will mostly be lower than the credit cards’ interest rates.

Personal Loans

These loans are targeted at people who might require financing for various purposes. The tenure on such loans is generally lower than traditional funds, but the personal loan interest rate charged seems to be higher. In most cases, these funds do not require any collateral against obtaining them, which makes them an attractive choice. The decision of using such funds for your business needs can be dependent on various factors that need to be thoroughly evaluated.

Invoice Factoring

This is the perfect option for companies that have B2B natured products or services. In the invoice factoring funding alternative, there are invoices that are issued to the customers or clients and these copies are sent further to the lender. Upon receiving these copies of the invoices, the lender moves forward to pay a fixed percentage of these invoices to the company. Once the payment has been received by the company from the clients or customers, the lender pays the remaining value of the invoices after deducting the applicable fee.

Merchant Cash Advance

A merchant cash advance is available only after the lender examines the cash flow of the company and verifies that it has a steady inflow. This type of funding is also protected by the future transactions on the credit cards, making it a good alternative to the business loans and the other forms of traditional financing options out there, especially for the businesses that are lacking credit ratings or any form of collateral required to secure the bank loans.

Trade Finance and Purchase Order

The small businesses in the market do not find the production or the sale of the products to be quite the challenge, for them it is locating the funds to procure raw materials or the merchandise that is pre-sold. By opting for this financing method, the distributors, producers, wholesale distributors, or suppliers can grow their companies without having to sell any equity or increasing their bank debt. This is a financing option that is fast as well as flexible. It allows businesses to fulfill the large orders that they get and to make higher profits, helps in making timely deliveries, and to increase their share in the market.

Turnaround Finance

The businesses that are viable but struggling to a certain degree and require some sort of financial assistance can turn to equity finance and specialist debt companies to turnaround. In order to effect a turnaround, the companies are required to identify and then acknowledge the problems first after which they move onto making changes in their management and then developing a strategy that is ought to work and them implementing it.

This financing option can as such work only for those companies that have a proven business model along with a profitable history or revenue that is stable. This is a suitable solution for the businesses that might be facing temporary problems that may be caused due to credit restrictions or disruptions in cash flow. For instance, it could be because of losing an important client or delayed payments by creditors, among others.

To Further Conclude

Due to the strict criteria set by banks and institutions for giving out traditional loans, it can be difficult for the owners of small businesses to raise funds for the companies if they wish to opt for the traditional way. Whereas, the alternative funding options have comparatively easier credit requirements along with flexible terms that can be customized as per the funding needs of the businesses.

Alternative lenders also work with companies that are not doing so well, so if you have a business that is doing well generally, you have a good chance of getting approval. One more reason to opt for these funds is the application procedure is faster and you do not have to wait for long before receiving the funds.

So do not make the mistake of assuming that the only solution for your business requirements is a bank loan – the rate of interest offered on bank loans might be attractive but it does not mean that alternative funding is a bad option. Instead, go through the information above and find the option that works well for your business needs.

More From Personal Loans