Bank loans are not always guaranteed. Out of the 37% of small businesses that apply for the loans, 80% get rejected. The process is also lengthy, demanding, and unsuitable for resolving emergencies.
Banks can decline a loan request for many reasons, such as bad credit, unsteady revenue, or high DTI (debt-to-income). Fortunately, you have other options for funding your business. Here are a few ideas to get the money you need.
1. Title loans
A title loan is a short-term loan that uses your car title as collateral. The amount you can borrow depends on the value of the car. The lender will hold on to your car title until you repay the loan. Thereafter, you’ll get your title back.
Getting a title loan is an excellent option if you need fast cash and own a car. However, do your research and find reputable lenders. Understand the terms, ask questions, and know the risks before signing on the dotted line.
2. Invoice financing
This option is ideal if your business has steady revenue but needs cash to cover expenses until customers pay invoices. You sell your invoices to a lender at a discount with invoice financing. The lender gives you cash upfront, and when your customers pay their invoices, you pay the loaned amount plus accrued interest. The arrangement enables you to free up cash tied up in unpaid invoices to invest in other areas of your business.
Microloans are designed for small businesses and offer smaller loan amounts than traditional loans. The average microloan is about $13,000. You can use the funds for working capital, equipment, or inventory. The loan duration is shorter than traditional loans with a higher interest rate.
You can get a microloan from a nonprofit lender, a community development organization, or a microlending institution. Because the application process is less stringent, microloans are easier to qualify for than other loan types.
Crowdfunding is a way to raise money by asking small amounts from a large group of people, typically through an online platform. It’s a popular method for small businesses and startups because no debt or equity is involved. You can offer rewards, such as company products to people who contribute to the campaign. The most important thing is to have a well-thought-out plan and market your campaign effectively. Also, make sure you choose the right platform. Have a convincing story and clear goals to make your campaign successful.
5. Personal loans
You can take out a personal loan from a bank, credit union, or online lender if you have good credit. The interest rates are usually lower than those of credit cards. Opt for a fixed rate to know exactly how much you need to repay each month. Personal loans can be used for consolidating debt, paying for home improvements, or funding a business.
6. Merchant cash advance
A merchant cash advance is a lump-sum payment for a percentage of your future credit card sales. The lender gives you the cash upfront and they get paid back automatically as a percentage of your daily or weekly credit card sales. The repayment amount is flexible as it goes up and down with your sales.
7. Home equity loan
A home equity loan uses your home as collateral. It’s a good option if you have built up equity in your home and need cash. Home equity loans have lower interest rates than other types of loans. However, if you default on the loan, you could lose your home. To make the loan process more manageable, apply for a home equity line of credit. It’s similar to a credit card, and you can borrow money on the go.
As you will realize, you can still get the funds you need for your business even if a bank rejects your loan request. Do your research and find the best option. Most importantly, remember to keep your business running smoothly so you can make timely repayments and avoid defaulting.