What is Alternative Lending?
Because of the financial crisis in the late 2000's, over the past several years, traditional banks and lending institutions have been reluctant to lend to small businesses. The main reasons given are smaller less experienced companies are riskier lending prospects and smaller loans under $250,000 are just not profitable.
Economists tell us that with the income they generate, taxes they pay, and the jobs they create, a healthy small business sector is the key to a healthy economy. Unfortunately, if your business is less than 2 years old, you have less than a 680 credit score, and your business needs less than $250,000, the odds are not in your favor, when looking to a traditional bank for financing to maintain and grow your business.
Thankfully, over the past 5 years, many alternative lending institutions, have entered the market place to fill this lending void and provide the small business community with innovative, cutting edge funding products, to help businesses overcome their financial challenge and meet their cash-flow needs.
Merchant Cash Advance, Invoice Factoring, Term Loans, and Business Lines of Credit are the main funding products, offered to business owners, to help manage cash flow and grow their businesses.
Heartland partners with the top Alternative Lenders in the industry. Whether our clients need funds to meet payroll, purchase equipment or inventory, pay taxes, or expand their business, we provide best individual funding options in the marketplace, to make sure our c;ients succeed.
Merchant Cash Advance
A merchant cash advance (MCA) isn’t technically a loan, but rather a cash advance based upon the credit card sales or business bank account cash flow of a business. A small business can apply for an MCA and have an advance deposited into its account fairly quickly. Merchant cash advance providers evaluate risk and weight credit criteria differently than a banker. An MCA provider looks at the daily credit card receipts to determine if the business can pay back the funds in a timely manner. Basically, a small business “sells” a portion of future credit card sales to acquire capital immediately.
Rates on a merchant cash advance can be much higher than other financing options depending credit qualifications.. It’s critical you understand the terms you’re being offered so you can make an informed decision about ROI.
A business that uses a merchant cash advance will typically pay back 10% – 30% of the amount borrowed (depending on credit qualifications). This percentage is called the factor rate.
An MCA is an option when a business needs access to capital quickly to take advantage of an opportunity to purchase inventory at a discount, a special marketing opportunity, or other short-term capital need. And, because credit requirements are less stringent, it could be an option for a business that does a lot of credit card transactions or strong cash-flow, but might have less-than-perfect credit. Apply Now!
Business Lines of Credit
Every small business owner encounters situations where they need quick access to extra capital. Traditionally, one of the most popular options for handling day-to-day cash flow needs has been a business line of credit.
A business line of credit (or “LOC”) is a revolving loan that gives business owners access to a fixed amount of money, which they can use day-to-day according to their need for cash.
LOCs are specifically designed to help businesses finance short-term working capital needs, such as:
Purchasing inventory or repairing equipment
Financing marketing campaigns
There are two main types of business LOCs:
Secured Business Line of Credit: With this type of LOC, a business must pledge assets as collateral to secure the loan. Since a Line of Credit is a short-term liability, lenders will typically ask for short-term assets, such as accounts receivable and inventory. Lenders typically won’t require capital assets, such as real property or equipment, to secure an LOC.
Unsecured Business Line of Credit: This type of LOC does not require assets as collateral. Still, the lack of collateral means a higher risk to lenders. Unsecured lines are usually smaller.
We have several Business Line of Credit options that are easy to qualify for. Some with no credit score requirements. APPLY TODAY!
Factoring is technically not a loan and is sometimes referred to as a “lockbox” at banks that offer the service. It’s a preferred method of financing for any businesses that don’t have other assets to offer as collateral and need capital quickly.
A “factor” is a third party that purchases part or all of a company’s accounts receivables in exchange for a percentage of the invoice. The “factor” then owns the outstanding invoices and collects from the customers. The factor earns a profit from the difference between the discounted rate negotiated to buy the account receivables, and the full invoice amount collected from the customer.
Most factors target specific businesses based on their annual revenues and the volume of invoices they produce each year. Some factors even specialize in particular industries. A Factor will review your client base to determine the creditworthiness of your average client, including a review of your previous shipment and collection information. If a client’s account is deemed acceptable, the factor will negotiate to buy your invoices for between 85% and 95% of the face amount, depending on the factoring agreement and average client creditworthiness.
Factoring can be a good option for small businesses looking for quick access to capital without going into debt, giving up equity, or encumbering capital assets.
Factors provide immediate working capital so your company can continue to produce and ship without interruption, while giving clients acceptable terms to pay. Apply Now!
Business Term Loans
A term loan is what most small business owners think of when they start looking for a small business loan. Term loans for businesses are generally used to finance the purchase of assets needed by the business – think land, equipment, or a vehicle. Term loans are sometimes secured by the assets they’re used to purchase, though other conditions frequently apply as well.
While credit cards are best for immediate expenses like travel or office supplies, and credit lines are primarily intended for cash flow management, term loans are meant for specific, high-cost purchases that will benefit your company over a longer period of time.
There are a few typical reasons a business would seek out a term loan:
Equipment, machinery, and other tools for manufacturing, service, and repair
Technology and other office equipment, such as computer equipment, phone systems, copiers, furniture, and point-of-sale (POS) systems
Real estate, office space build-out, renovations, and new construction
A term loan is a good option for financing capital improvements, purchasing equipment, buying real estate, or other similar needs. Apply Now!