Without question, every business runs on money. It is, however, a fact that business owners do not always have the funds to finance their companies. The business world is unpredictable, and often, new requirements keep emerging. The Covid-19 pandemic was an unforeseen occurrence that affected the livelihoods of many businesses. Even though the Paycheck Protection Program (PPP) helped to some extent, it has now run its course. There are still many small businesses in need of business funds today. Those who were able to access the PPP funding might still need extra input.
Even with businesses opening up, many have not returned to where they were initially regarding finances. However, there is hope because businesses can consider the top PPP loan alternatives below.
Business Term Loans and Microloans
A business can still stay competitive with a business loan as it can inject working capital and cater to other financial needs. Business term loans are loans borrowed from banks to be repaid over a set period. These kinds of loans avail large amounts and can even be repaid over a long period, like ten years. Due to that, they may be more challenging to acquire.
As the name suggests, microloans are small loans that lenders offer. They are ideal options for those who want to obtain funding within $50,000. Since microloans are smaller, they are easier to get. However, they also tend to have high interest rates.
Business owners can still obtain term loans and microloans backed by the SBA through its different lending programs. The amount someone can borrow and the terms primarily depend on a specific program and the business needs.
Merchant Cash Advances (MCAs)
MCAs are top PPP loan alternatives that help borrowers or businesses receive lump sums. The lump sum is granted in exchange for a business’s remittance or debit/credit sales percentage in the agreed period (weekly or monthly). The best thing about MCA providers is that they are relatively less lenient on eligibility requirements. MCAs are good options for businesses that transact on a credit or debit basis and are better suited for businesses with significant sales volumes.
The downsides are, however, significant and not to be overlooked. High interest rates and aggressive collection tactics can make MCAs a risky venture for some businesses. This is where the role of a trusted merchant cash advance attorney becomes crucial, as they can help navigate the complexities and potentially mitigate risks associated with these financial agreements.
Inventory and Equipment Financing
These two PPP alternatives are different but work almost similarly, and they are relatively more straightforward to acquire due to minimized risks. One of the reasons many businesses consider borrowing is to buy inventory or fund equipment needs. Inventory financing helps such businesses by offering funds with inventory as collateral, while equipment financing provides funds with the obtained or funded equipment as collateral.
Grant Programs
Both governments and private entities offer grant programs that can be alternatives for businesses. Grants often have lengthy application procedures and may be more challenging to qualify for, but they are worth considering because of their significant upsides.
Those who know where to look, have time, and are selective and strategic about applications can obtain grants. If the grant is awarded to a small business, a business owner is not required to pay it back. Grants do not take care of operation expenses, cover the existing debt, and are usually not availed to start a business.
Invoice Factoring
Businesses that make sales on invoices can benefit significantly from invoice factoring. Invoice factoring is a financing option through which borrowers get an upfront portion of their invoice balances in cash by selling unpaid invoices to third parties at a discount. A “factor” is what determines the invoice portion to be received.
Invoice factoring is a PPP alternative to consider since it avails funds faster. Approvals do not depend heavily on creditworthiness but rather on the payment history of a business’s customers.
Business Credit Cards and Lines of Credit
Business credit cards are good PPP alternatives, especially for short-term and minor financing needs like cash flow discrepancies. Business owners can also use credit cards for long-term financing. Still, finding a credit card that allows payments with no interest for the initial period (zero-percent APR period) is a good idea. Usually, once the period is over, most credit cards attract higher interest rates.
Lines of credit work similarly to credit cards by allowing business owners to borrow money up to a set limit within a short period to finance things like seasonal expenses, inventory, and unexpected costs.
The significant difference is that a line of credit allows a business owner to withdraw cash whenever needed instead of making purchases and paying for them later.
Both of these options are excellent ways to build credit credibility.
Peer-to-Peer Lending (P2P Lending)
P2P or social lending entails collecting small amounts of money from multiple lenders to develop a large amount for a business. Mostly, P2P lending is online-based. The platforms work to match or link business owners with potential investors. These investors lend money personally instead of actually investing, and a business owner bears the responsibility of investing the availed funds into their business and paying back.
P2P lending provides lower interest funds than traditional loans with no hidden charges or fees. Usually, P2P lending is ideal for those looking for small loans.
Final Thoughts
There are many alternatives to PPP loan products for businesses to obtain funding. This article has highlighted some of the top ones available. Interested business owners only need to research and find an alternative that suits their personal preferences and business needs because all these alternatives come with different requirements, terms, or conditions.
Also read: 5 Best Startup Business Credit Cards with No Credit
