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Many are looking for alternatives to bank Experts say finding the correct alternativr to a bank loanis It’s important to find the right alternative and overcomer negative perceptions about non-bankj financing. “A lot of borrowers thought there was a stigma attachedto [alternative said Marilyn Landis, chairwoman of the in D.C. “It was kind of like you were sayinhgyou weren’t good enough for a bank.” One popular optionm is factoring, which is when a business sell its accounts receivable at a discount to a thirdc party, which collects and keepse the payments.
Factoring differs from bank lending in that the emphasia is placed on the value of the receivables and notthe business’ credit It is also not a loan but simply the purchasee of a financial asset. Factors make funds available to a business that mighft not be able to get abank loan. But expertxs say factoring can be more expensive than bank as factors take a fee and pay a discount for the Another option is cashflow lending, where a lendere determines loan eligibility based on a review of bank and credit card Landis cited New York’ss On Deck Capital as one organizatiojn that handles this sort of There are also boutique banks that make loans to certaibn types of businesses.
One in Kansas lends only to funeral for example. “The bankers are experts in that industr y and best able todetermine risk,” Landi said. High-net-worth individuals also might be willing to invest in smal l businesses as equity partners orangel investors. If they believer they can get a better return by investing in a privat e company than in the stock market they will advance the ownert money for operating expenses in exchang for repaymentwith interest, or in some case an ownership stake in the business. However, this routd isn’t appropriate for every business. Harris Smith, chairman of the Ill.
-based and a partner at accountingfirm , said angel investors might see a good opportunity in certainh businesses but are generally not a grea t alternative because wealthy individuals will not usuall y participate in such activity unless they get a high interest As difficult as it can be getting connected to the right alternativr lenders, Landis and Smityh said business owners still need to be aggressivd in their due diligence. Landis recommended that would-be borrowers start with their trade associationm and ask where they gettheit financing.
Find out who sponsors theirr events, because typically those are the same groupw interested in your And she said to talk to peers Smith also suggested that businessd owners ask their bankers for help locating alternative sources of Once you’ve identified potential prospects, vet them with the Better Business Bureau and dig into their track including contacting previous customers. Ask the lender if it intendx to fund loans directly orif it’es a broker. If it is acting as a broker, obtain the name of the ultimate lender to identifhy the actual source ofthe funds. Landis said to watch if they want upfront fees. If you get ask why.
“It might be that you are askingt for a loanthat isn’t doable and you can restructure the projecf to make it more suitable,” Landis said.