The Good Buzz On Alternative Financing

Speed to market is an advantage within reach of small businesses.  Fast execution of ideas and strategies brings to mind small teams working 12-15 hour days, testing “out-there” products and eventually creating a break through successful business, service or product.

Speed to market means being flexible and innovative. It’s precisely what small business need to compete against big businesses that are backed by enormous teams, endless resources, global reach, and massive R&D.

Thanks to the digital age, speed to market has given rise to an assortment of new business models. One of them is alternative financing. Alternative financing is business funding that breaks away from the tough lending requirements dictated by banks, credit unions and other traditional lending institutions.  Bob Hope is famously quoted as saying, “A bank is a place that will lend you money if you can prove that you don’t need it.” That’s an accurate description of the situation most small business owners face when they need working capital and turn to a bank.

Alternative financing provides a business financial solution especially targeted toward small businesses. A Merchant Cash Advance is the most common financial product offered through alternative financing. The all-around fast and easy approval process drives the popularity of Merchant Cash Advances. Practically any business that does high-volume credit card transactions can potentially get approved for a merchant cash advance. The funding is not a business loan. Instead it is a business cash advance collateralized by future credit card sales. In addition to the term Merchant Cash Advance, this small business financial solution is also called credit card receivable funding. This is because the funder advances the merchant money based on the purchase of future credit card sales. 

“A bank is a place that will lend you money if you can prove that you don’t need it.” Bob Hope, comedian

To qualify, a merchant that accepts credit cards can present a history of their credit card transactions and a few other documents to prove eligibility. Eligibility documents are normally accepted online and can include 3-9 months of banks statements and, depending on the funding institution, a credit score “soft pull.” The merchant cash advance company runs the information through their underwriters and can provide approval within hours and funding anywhere from within a day to a week.  

Alternative lenders also make approval for small business loans possible. The small business loans are usually y short-term, ranging from 3-12 and are paid back through ACH fixed payments. Like Merchant Cash Advances, these short-term small business loans are also available to business with less than perfect credit and/or no collateral.

Credit Soft Pull vs Hard Pull

A soft pull is an inquiry into credit that doesn’t impact the applicant’s credit. Credit score is reviewed in relation to a background check and typically will not appear on your credit report.  Be sure to make sure any funding company you are considering will do a soft pull on your credit. If a company is not willing to do a soft pull on your credit, that probably means that a very good to excellent credit score is required. If that is the case and you don’t have good credit, like many small businesses, then don’t waste your time or run the risk of even lowering your score more. A hard pull on your credit requires your permission and can lower your credit score and stay on your credit report for up to two years. 

The repayment model for credit card receivable funding is also one of the reasons that the financial product remains viable for both parties. Payment is fully automated. There are two automated methods. One, called Automated Clearing House (ACH) deducts payments directly from a business bank account on a daily or weekly schedule. With ACH, the amount paid daily or weekly is set in advance and doesn’t fluctuate. The other method, known as Split Funding, is designed so that the amount paid back rises and falls directly in line with credit card sales. In this case, the merchant and the alternative lender agree upon the percentage of sales that are due as payback daily or weekly, but again, as the sales amount rises and falls, so does the actual amount deducted from the credit card transactions. Split Funding is an extremely flexible solution and is ideal for seasonal businesses.

How Small Businesses Use Alternative Funding 

  • Immediate solution to cash flow shortage

  • Inventory purchase

  • Emergency repairs

  • Expansion or remodeling

  • Paying off more expensive debt

  • Investing in a franchise

Greenbox Capital offers a variety of flexible alternative financing solutions for small businesses. For a free consultation, please complete our application or contact our Merchant Account Service Team.