Did the Paycheck Protection Program (PPP), a lifeline created by the federal government to buoy small businesses impacted by the COVID-19 pandemic, serve as your financial beacon? The PPP, now expired, was designed to provide critical financial aid to businesses, enabling them to sustain their payroll during turbulent times.
Think Outside the Box: Creative Alternatives to PPP Loans for Your Business
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Even with the PPP phase-out, numerous business owners are scouting for comparable financial aids to continue fueling their ventures. The speed and ease of securing PPP assistance have set a benchmark, leading businesses to search for alternatives beyond traditional bank loans. A host of other loan sources, investment options, and even grants are available. Let’s delve into the most promising ones.
SBA Microloans
The US government’s Small Business Administration (SBA) offers a microloan program for small funding needs. While the maximum loan amount caps at $50,000, the average loan tends to be around $13,000. These loans, guaranteed by the SBA, are disbursed by local SBA lenders. The loan proceeds can be channeled towards payroll, inventory acquisition, equipment purchases, or as working capital. With a maximum repayment term of six years, the interest rates typically fluctuate between 8 and 13 percent per annum, based on the local lender.
Business Grants
Business grants are the golden goose of capital raising, offering funds that, unlike loans, need not be repaid. Additionally, they don’t demand an equity stake in your business like many investment capital options. Despite their attractiveness, qualifying for and securing these grants can be challenging but well worth the effort.
Consider these sources for business grant financing:
- Federal Government grant information available at Grants.gov
- National Association for the Self-Employed Grant
- State-level grants through the United States Economic Development Administration
- Special grant programs for business owners who are military veterans through the Department of Veterans Affairs (VA)
- SBA’s special grant programs for women business owners.
- Invoice Factoring
This alternative capital-raising method involves “selling” your accounts receivable to a factoring finance company. For businesses dealing with credit-based client purchases, factoring companies can offer immediate cash based on the client’s credit standing, taking on the responsibility to collect the customer’s dues.
Remember to familiarize yourself with their terms, especially whether your receivables are being bought outright (without recourse), or with recourse, which could lead to repayment obligations if they fail to collect from your customer.
Inventory Financing
Retail businesses, in particular, require a substantial working capital to maintain a stocked inventory. Some vendors and specialized lenders offer inventory financing, purchasing your required inventory and securing the payment with the inventory itself. As you sell the goods, you repay them. Alternatively, existing inventory can also be collateralized for a loan to meet other business needs.
Equipment Financing
This resembles inventory financing but generally involves larger sums, given the higher value of business equipment. Whether it’s computer systems, phone systems, or machinery, businesses can use this financing to procure new equipment or leverage existing equipment as collateral.
Business Credit Cards
Several banks offer business-focused credit cards under well-known labels like Visa, Mastercard, and American Express, with your business being the account holder. While the capital raised may be modest, the benefits include a separate credit source, swift access to funds, and various rewards and discount offers akin to personal credit cards. Moreover, a business credit card can serve as an efficient tool to track your business spending.
