Business Finances - Non Traditional Financing And Funding
Non-traditional financing generally refers to funding resources that are not provided
by traditional lenders, such as banks, credit unions, and the Small Business Administration. This means of financing usually includes cash loans, advances, and factoring, and are provided by independent financial companies. These funding options are generally only used for short-term working capital needs.Cash loans are non-traditional financing options usually chosen by individuals with poor credit histories. Because the providers of these loans are willing to take on high-risk borrowers, cash loan interest rates can be higher than a traditional loan. The approval process is relatively easy, as cash loan providers do not require as much financial documentation as other lenders. Applicants must have proof of employment or income, a valid bank account, and cannot have outstanding cash loans or advances. Applications are available online or at the lenders place of business, and they only take a few minutes to complete. Approvals can be made in as little as a few hours. Once approved, the lender deposits the funds into the borrowers bank account.
Cash advances work a little differently. Instead of taking out a loan, the applicant uses his or her next paycheck as collateral for the funds. The requirements and approval process are generally the same as with cash loans.
Factoring allows businesses to sell their accounts receivables to another company, called a factor. In order to qualify, a business must process credit card orders and must have been doing so for a length of time specified by the factor. Once approved, the factor accepts the payments to the businesss accounts until the amount is paid off.
Non-traditional funding generally refers to financing resources that are not provided by commercial banks, credit unions, or the Small Business Administration. These sources are usually funded by independent financial companies or individuals that specialize in a particular type of funding. The most common types of non-traditional funding are factoring, private investors, and cash loans.
Factoring allows a business to receive immediate cash without incurring debt on the balance sheet. To qualify for factoring, a business must process credit card purchases and must have been doing so for a certain amount of time. The business then sells its accounts receivables to another company, called a factor. Once approved, the factor collects the payments to the accounts until the amount is repaid. Factoring is not a loan, and the funds may be used for any business purpose.
Private investors are another type of non-traditional funding. These individuals will contribute a certain amount of money to a business in exchange for a portion of its profits. Business owners usually try to attract private investors because the majority of them do not require the funds to be repaid. Instead, investors supply a business with equity that does not carry debt.
Cash loans are a type of non-traditional funding typically used by businesses with bad credit. Cash loans are easy to obtain because they require little or no financial documentation. However, these funds are usually only for small amounts of money that must be paid back within a short time period. Their interest rates typically are higher than traditional loan rates.
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