Imagine the situation where you have a business, or you want to have one. You’re going to need a lot of money and your savings are obviously not enough. What’s your first thought? Yes, go to the bank and take out credit. Sounds pretty good, but sometimes it’s easier said than done. When the credit market gets tight, you have to look for other options. Today we’ll discuss the five alternative ways to borrow money and then you will be able to choose the one that suits you best. Let’s get going!
1. Factoring, or accounts receivable financing
This is an oldie, but a goodie, in the way of in-house financing. To make it clear, factoring is what happens when a company sells its invoices to a financial institution, called a ‘factor’. In this case, the factor usually advances funds in the amount of 80% of the receivables’ face value and keeps the 20% as the reserve.
Then the factor performs the transactions and executes payment collections. For these services and the provided funds, the factor may take more than 20% of the receivables’ face value from the borrower. When the accounts are paid, the borrower gets the difference between the face value and the reserve.
One of the significant advantages of factoring is quick access to cash. Aside from that, if the business grows steadily, the accounts receivable will continue to come. If this sounds tempting for you, make sure you choose a reliable factor.
2. Peer-to-peer lending
It’s always great to have someone who believes in your success. Friends, relatives, good acquaintances or those who are simply interested in your business, can become your peers and give you a loan. This type of lending can be officially arranged, formal, or informal.
Besides the very quick access to the needed funds, you may get very flexible repayment conditions. Still, keep in mind that even if the lending seems serene, there can be some obstacles. For example, your peer-to-peer investors may want you to give them huge discounts for your products or services in return for the provided loan.
There is also another version of peer-to-peer lending, the social marketplace. Using this type of money borrowing, you can get a rather low rate for risky business ventures and flexible terms of repayment, in comparison to other lending options. If you want to use the social marketplace to ask for a loan, you just place your request online using one of the many available platforms. Prospective lenders bid for your loan, offering to provide the needed amount at a specified interest rate.
In this case, you have the opportunity to choose and accept the offering with the lowest rate and the mildest repayment conditions. As always, this option has its drawbacks. The most crucial one is that you probably don’t know your lender and you have to make your loan requirements public.