This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

3 Alternative Lending Sources for Small Businesses

NEW YORK ( TheStreet) -- The increased use of merchant cash advances by small businesses is an expensive reality of the post-recession credit fallout.

Merchant cash advances are financing transactions increasingly being used by small retailers and restaurants -- generally those that have high credit-card and debit-card volume. Cash-advance companies provide working capital funds in exchange for a portion of future credit card receivables. The lump sum, usually given within a few days, does not require personal guarantees or collateral like bank loans do, but they carry short terms and high rates. Plus, if a business starts to fall behind on payments (which are collected via remittance of sales), you can be sure that the lender will quickly look for its money.

"The smaller the business, the more likely [it's] going to have to use these alternative forms of capital -- the smallest hairdresser might need to rely on a cash advance," says Dun and Bradstreet Credibility CEO Jeff Stibel. "If you're going to go down the route of a high-interest, short-term loan, do your homework. Find the best terms with the most reputable companies and focus efforts there."

Even in the best of times, it was difficult for a small business to get a bank loan, so companies, especially startups, have had to resort to any combination of ways to get financing, including personal savings, credit cards and other types of so-called alternative lending.

According to the latest Biz2Credit Small Business Lending Index, the use of alternative lenders, which includes accounts-receivable financers, merchant cash-advance lenders, Community Development Financial Institutions (CDFI), micro lenders and others, continues to rise. In September, the group approved two-thirds of the applications they reviewed, the highest recorded since Biz2Credit started the index in 2011.

"Alternative lenders offer greater flexibility, quicker approvals, and competitive lending rates than they ever have before. This type of financing is very helpful for small and mid-size businesses that encounter short-term cash-flow issues," Biz2Credit co-founder Rohit Arora said in a statement.

"Restaurants and retailers, in particular, find this type of financing attractive as they look to the fourth quarter to be more profitable than other parts of the year. Many businesses are seeking short-term working capital to prepare for the upcoming holiday season," Arora says.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AMZN $437.39 0.76%
AXP $78.40 0.87%
AAPL $126.60 0.94%
FB $86.91 1.34%
GOOG $521.84 0.26%

Markets

DOW 17,757.91 +138.40 0.79%
S&P 500 2,077.42 +14.31 0.69%
NASDAQ 5,013.1230 +26.2560 0.53%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs