Tuesday, August 18, 2009

Alternative Financing For Your Business

The story is much the same for many a small business looking for credit today. After all, credit is the oxygen that many businesses rely upon. Traditionally, the source of that credit was the bank. However, the times are changing and many businesses have begun to realize that banks may not be the best resource.

In order to stay afloat, banks have made their lending procedures quite rigid. The rules and criteria are simply not realistic for many small businesses. As such, several unconventional forms of financing are available to small businesses. Business owners admit that they may make less money but unconventional financing allows them to maintain their businesses during these rocky times.

An asset-based loan (ABL) is one such form of financing. Most applicable for a manufacturing business, this type of loan allows the owner to use existing merchandise as collateral for the loan. Customers order new merchandise based on the existing products. In the worst case, the owner would have to sell his inventory to repay the loan.

Another method on the market is contract financing. In this scenario, the lending institution finances the purchase order, rather than the manufacturing process. After completion of the transaction, the lender receives an agreed-upon percentage of the profit.

The need to seek alternative financing methods has forced small business owners to carefully examine their businesses. After all, if the business was stable, there would be no problem securing bank credit. The banks are in the business of lending money that will be repaid. The silver lining in the cloud is that small businesses are becoming more professional. In the long term, this can only benefit them and the financial community.

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