If your lender has turned down your business for finance, what are your options?
Alternative finance is a broad term that is used to describe a range of financial products and services that are not traditionally offered by banks or other traditional financial institutions.
This includes factoring, crowdfunding, peer-to-peer lending, venture capital, and angel investing. Alternative finance also encompasses micro-loans and merchant cash advances.
Invoice factoring
Invoice factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. The factor provides the business with an immediate lump sum payment, which is usually a large percentage of the total invoice value. The factor then collects the full invoice amount from the customer and remits the remaining balance, minus a fee, to the business. This process allows a business to quickly access cash and improve its cash flow.
Factoring can be disclosed or non-disclosed.
Disclosed invoice factoring is when a lender purchases a business’s invoices and then the customer is aware that the invoice has been assigned to the lender. In this type of factoring, the customer is sent payment instructions from the lender.
Non-disclosed invoice factoring is when the lender purchases a business’s invoices and the customer is not aware that the invoice has been assigned to the lender. In this type of factoring, the customer continues to receive payments from the business, and the lender is not revealed to the customer.
Types of factoring
Recourse Factoring: In this type of factoring, the factor has recourse to the small business if the customer does not pay for the invoice.
Non-Recourse Factoring: In this type of factoring, the factor does not have recourse to the small business if the customer does not pay for the invoice.
Spot Factoring: This type of factoring involves the factoring of a single invoice.
Maturity Factoring: This type of factoring involves the factoring of a series of invoices that have a predetermined maturity date.
Accounts Receivable Financing: This type of factoring involves the purchase of accounts receivable at a discounted rate.
Purchase Order Financing: This type of factoring involves the financing of a purchase order.
Crowdfunding
Crowdfunding is a form of alternative finance in which individuals or businesses can raise funds through an online platform that connects them with potential investors, backers, and donors. The platforms typically have a variety of options for investors to contribute money, including one-time donations, equity investments, and debt investments. Crowdfunding is often used by start-ups and entrepreneurs to launch their businesses and products.
Peer-to-Peer Lending
Peer-to-peer lending is a form of alternative finance that allows individuals to borrow money from other individuals rather than banks or institutions. It typically requires less paperwork and has lower interest rates than traditional loans. Lenders can set their own terms for repayment and are often willing to work with borrowers in order to find a repayment plan that works for both parties.
Venture Capital
Venture capital is a form of alternative finance that involves investing money in early-stage start-ups in exchange for equity or ownership in the business. Venture capital firms invest in companies they believe have the potential to become successful and profitable. They provide start-ups with the capital they need to grow their businesses and products.
Angel Investing
Angel investing is a form of alternative finance in which individuals invest their own money in start-ups and early-stage businesses. Angel investors are typically wealthy individuals who are looking to make an investment with the potential for a high return. They often provide mentorship and advice to the businesses they invest in as well.
Micro-Loans
Micro-loans are a form of alternative finance that provide small amounts of money to individuals or businesses in need. Micro-loans are typically used to fund small-scale projects or start-ups and are often granted without the need for a credit check or collateral.
Merchant Cash
Advances Merchant cash advances are a form of alternative finance that provides businesses with a lump sum of money in exchange for a percentage of future sales. This is often used by businesses that need money quickly and do not qualify for traditional bank loans. Merchant cash advances are typically more expensive than traditional loans, but can be a useful tool for businesses in need of short-term capital.
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