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Steps to Take When You Can’t Get a Business Loan

For entrepreneurs, it is often easy to come up with ideas for starting and growing their business. It’s finding the money to make it happen that is difficult. For many small business owners, getting a loan from a bank or traditional lender is seemingly impossible, forcing them to scramble to find the infusion of capital they need. Fortunately, not getting a business loan doesn’t necessarily mean the end of your business. Here’s what to do if you can’t get a business loan and why denial isn’t always the end of the world.

1. Understand why you were refused.

Before exploring other ways to raise money for your business, it’s worth exploring exactly why you were turned down for a business loan in the first place. While many entrepreneurs may give up and give up after being turned down for a loan, others realize that the problem that prevented them from accessing a line of credit initially can be resolved later. If you never know why your business was rejected, you can’t hope to strengthen your weak spots and come back later, more confident and assured of your success than ever before.

It is worth considering some of the common reasons why businesses are turned down for loans as it will help you successfully apply for financial assistance in the future. However, when you have truly depleted your creditors’ pool and a business loan is simply not available, you need to get down to business and look for alternative measures to establish or expand your business empire. An excellent and particularly modern method is crowdsourcing. This option is easier and more profitable today than it was a few years ago.

Crowdsourcing, as the name suggests, depends on sourcing your funds from a large number of people. In most cases, that means bringing your case directly to the public and reaching thousands, if not millions of people at once by harnessing the power of digital technology. Social media campaigns and digital marketing efforts have already demonstrated that crowdsourcing can be incredibly effective. The benefits of crowdsourcing are incredibly diverse, such as when NASA used it to generate ideas. However, business owners will be interested in the ability of crowdsourcing to raise huge sums of money through the popular approval of ordinary people who want to see your dreams come true.

Crowdsourcing your business’s capital needs will only work if you can convince a mass audience to support your plans. This is why crowdsourcing is particularly popular among startups who have started labeling it ‘peer investing’, even though even established business owners can trust this method if they know what they are doing. .

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2. Be careful when using digital technology.

Despite the allure of using digital technology to solve your financial needs, this technology should be used with care and great caution. The digital world is full of scandals and opportunities to diminish your brand. For example, if your crowdsourcing campaign inadvertently goes back on promises made to the financial public that make your project a reality, you could have a PR disaster on your hands as angry investors boycott your business. It is essential to consider all of the available options before finalizing your decision on how to finance your business.

That’s not to say that digital technology isn’t often a boon for businesses that need alternative financing. Online loans have become so popular lately that some are starting to wonder if banks should be concerned about this trend. More common ways to raise money, like getting a business credit card, are also gaining popularity as traditional business loans become more difficult to obtain.

We can expect that online ways of raising money for one’s business will continue to grow in popularity, especially as more startups join the market. Entrepreneurs and professionals with limited credit histories will find it frustrating, if not downright impossible, to secure a large business loan on favorable terms, so the proliferation of digital technology that allows for greater investment among peers should be widely. considered a victory for everyone in the business world. Nonetheless, it’s imperative to remember that you need to be careful and meticulous when dealing with digital money sources so that you don’t burn yourself out.

3. Build up your cash flow.

One of the most important things to understand is that healthy cash flow is essential for securing a line of credit. After all, those who lend you huge sums of money need to be reassured about the return on their risky investment. Demonstrating that you are capable of building up your cash flow before receiving an influx of capital is the only surefire way for any business owner to prove to potential investors that they have the capacity to take out a loan and turn it into long-term profitability. term for everyone involved.

So, how can you strengthen the cash flow of your business? First, reduce any pre-existing debt you have. Few creditors will be willing to give your business the money it needs to survive if you only use it to pay off debts to other investors. Learning how to properly manage and increase your small business cash flow is essential to long-term economic success in a competitive market.

In this vein, you should ask yourself how you plan to reduce the weight of your business. Every business has garbage hidden beneath the surface. Maybe you are relying on outdated or inefficient technology, or maybe your workforce needs to be downsized. Either way, it will be necessary to look at your current business setup and figure out how to remove unnecessary elements from your business structure to get by without a serious business loan to back you up.

4. Know what it will cost.

Finally, those who avoid traditional business loans, or find themselves unable to obtain one, should understand that alternative means of financing are alternative for a reason – they often come with particularly high costs. If you have to rely on a third-party lender because a bank or more serious financial transaction won’t give you the money you need, it’s only natural that they charge you high interest rates so that ‘he can make a return on his risky investment. . If you don’t factor in the cost of alternative finance up front, you risk stepping deeper into a dark financial hole.

Nonetheless, alternative financing methods have propelled countless businesses of all sizes to success. Dedicated business owners who bolster their cash flow will find that not getting a business loan doesn’t mean they’ll be stranded without the cash they need forever.

Alternatives to business loans

If a traditional business loan is beyond your reach for the foreseeable future, there are other options for getting the financing you need. Here are several alternatives to a traditional business loan:

Credit lines

A line of credit is a specified amount of money that a lender – usually a bank but also other lenders – grants to a business. You can use this line of credit as needed, but you will pay interest on the amount you use until it is paid off. If you’re eligible for a line of credit, it’s a great way to quickly access emergency funds without jumping through too many hoops. [Looking for an alternative lender? Check out our picks for best small business loans.]

Short term loan

A short-term loan is a loan that you are supposed to pay off in a year or less. Banks do not usually offer these loans, but they are quite common for alternative lenders. As the name suggests, short term loans are beneficial when you need to cover a one-time cost or need a little boost to get your business started.

Invoice factoring

Invoice factoring is a type of alternative financing in which a business sells its unpaid invoices to a third party. The invoice factoring company typically pays 85-95% of the invoice value, giving your business cash flow quickly. The remainder of the original invoice is paid to you after the customer has paid their invoice, less a small fee which remains the responsibility of the factoring company. This type of loan is ideal for businesses that regularly have unpaid bills that strain their cash flow.

Cash advances from traders

A cash advance to a merchant is money that a lender provides to a business in exchange for a percentage of their credit card sales over a period of time. This alternative financing option is ideal for stores that have a high volume of credit card sales each day, such as a restaurant or boutique.

Microcredits

A microcredit, typically $ 50,000 or less, is designed to help small business owners get back on their feet. These loans are usually not available from banks, but alternative lenders provide them to businesses that need to acquire new equipment, open a new location, or hire staff.

Equipment financing

As the name suggests, Equipment Finance Loans are used to purchase mission critical equipment. Unlike other loans, the equipment itself is collateral, which can lower interest rates. If the equipment is valuable enough, the application approval process can go much more smoothly, as the lender’s risk is mitigated by the equipment.

Sean Peek contributed to the writing and research of this article.


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