Weighing The Pros And Cons Of Different Financing Sources

Bank loans are not the be-all and end-all when it comes to financing anymore and they haven’t been for a while. Borrowers now have more options and power than ever and can choose from a whole host of financing sources. Some may be more suited to what they’re trying to accomplish than a traditional loan, and they might also be easier to get. Before you choose one of these alternative methods, however, you need to look at some of their positives and negatives. Let’s take a look at some of the pros and cons of different financing sources.

Alternative Lenders

Alternative lenders might be your best shot if you don’t have good credit or don’t have much credit history. These lenders will usually look at factors beyond your credit score, like your accounts receivables or your cash flow to see if you are eligible. If you want to look at what these lenders have to offer, we suggest you check out AdvancePoint Capital’s alternative funding options for your business.

You should know, however, that these are not perfect. Some may have higher fees than traditional loans, or you might need to pay the loan back sooner. These are things you will need to pay special attention to when working with an alternative lender.

Invoice Factoring

Invoice factoring is a method that allows you to borrow money on invoices that are due to you. The beauty of invoice factoring is that your credit score is pretty much irrelevant. It’s the credit score of your debtors that will count the most. So, if they have good credit, you are more likely to get accepted.

However, one of the drawbacks of invoice factoring is that you will have no control over the invoices you hand over, and you will still have to cover them if one of your clients defaults. Then there’s the fact that you could have to pay the invoice factoring service as much as 5% on each invoice. This could be an issue if your business is running on tight margins.

Equity Financing

Another option is offering equity in your business. This can have many advantages if you have a business that has been turning a decent profit but you didn’t have time to build your credit yet. You won’t have a loan to repay either and bringing in a partner with the type of expertise you need will allow you to be more profitable.

On the other hand, you will have to be ready to give up control. Depending on what you and the other party want, you might have to give up a majority stake in your business. This could be tough if you have a strong emotional connection to your business.

You will also have to share profits and deal with the possibility that you clash with partners. If you gave up control, they might remove you from decision-making positions and pretty much freeze you out, so this is something you’ll have to consider.

These are all things you need to look at when checking different lending options. Look at those that are realistically attainable for you and research what you can expect from them.