PPP Loan Alternatives Best for Business
The Paycheck Protection Program (PPP) was set up by the federal government to assist small businesses struggling financially due to the COVID pandemic. As its name implies, the main purpose of the PPP was to offer financial aid to businesses so they could keep paying their employees. The PPP was only temporary and has since expired.
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Although the PPP has ended, many business owners are still looking for financial assistance for their businesses. PPP assistance was relatively easy and fast to get, and they are looking for similar financing alternatives. In addition to traditional business loans from banks, there are other sources of loans, investment money and even grants available. Below the best of these financing alternatives are discussed.
SBA Microloans
The US government’s Small Business Administration (SBA) has a special business loan program for small amounts of money called microloans. The maximum loan amount is $50,000, but the average loan amount is $13,000. These loans are actually made by local SBA lenders with the loan being guaranteed by the SBA. In addition to payroll, the loan proceeds can be used for buying inventory, purchase of equipment, and working capital. Maximum repayment term allowed for an SBA microloan is six years and interest rates vary depending on the local lender, generally, between 8 and 13 percent per year.
Business Grants
A business grant is the most ideal way to raise capital for a business, because unlike a loan, it does not have to be paid back. Also, you don’t lose any equity in your business like with most investment capital injections. While they are great to get, they are also very difficult to qualify for and obtain. However, grant financing is worth the effort to try and secure.
The following are some sources of business grant financing:
– Federal Government grant information at the website Grants.gov
– National Association for the Self-Employed Grant
– State level grants through the United States Economic Development Administration
– For business owners who are military veterans through the department of Veterans Affairs (VA)
– For women business owners, special grant programs through the SBA.
Invoice Factoring
Another way to raise capital for your business without borrowing is to “sell” your accounts receivable to a factoring finance company. If you have clients or customers who buy from your business on credit, they often will take up to 90 days to pay you. Meanwhile, your business could be short of working money. A factoring company will pay you right away a certain percentage of what the customer owes, and then they will collect the money from the customer when it’s due. The stronger the customer’s credit standing is, the higher the percentage will be that’s paid to you.
If you use a factoring company, be sure to understand their terms in advance. Your receivables can be bought from you outright (without recourse), or with recourse. The latter means the factoring company can make you pay them back if they can’t collect from your customer.
Inventory Financing
Many businesses, especially retail ones, need to keep a good supply of merchandise on hand. This requires available working capital. Some vendors and special lenders will pay for your needed inventory and use that inventory as security. You then pay them back as you sell off the goods. There are also some lenders who will let you use existing inventory as collateral for a loan, which you can use for other business needs, including working capital.
Equipment Financing
This is similar to inventory financing, but usually involves larger monetary amounts. This is because business equipment is worth more than most businesses’ inventory. This type of financing is good for a business with lots of working equipment like computer systems, phone systems and similar items. It is also good for a company that is mostly industrial or manufacturing. As with inventory financing, you can use this type of financing to buy new equipment or use your existing equipment as collateral to raise money.
Business Credit Cards
There are many banks that offer specialized credit cards, designed for business. These credit cards are major label – such as Visa, Mastercard and American Express – and your business will be the account holder. This is a good financing option if you have a good credit rating and banking history. While you will usually only be able to raise a modest amount of capital this way, business credit cards have some strong advantages. First, it will be a credit source and account separate from your personal ones. Also, this type of financing can often be secured within one day. Plus, many business credit cards have perks similar to personal credit cards – including reward air miles, cash back rewards and many discount offers. Last but not least, using a business credit card can help you keep a clear and accurate track of your businesses’ spending.
