Good Business Practices – Financing Alternatives to Traditional Loans

Tip: Alternatives to loans might make good business sense – or they might cost more. Check terms carefully.

Vendor Credit- Trade credit or vendor credit is used when a business makes a major purchase, to be paid over time on credit from a vendor. Comparison-shop to see whether you might do better by paying for the purchase with some other form of financing. Discuss terms with your vendor, and don’t be afraid to negotiate for a better deal.

Customer Financing- Sometimes a major customer or potential customer for your business may help you by providing special financial assistance. In this case, review the terms offered and make sure the requirements would ne be too limiting for your business in the long run.

Factor Companies- The “factor” purchases your accounts receivable (money owed to you) at a discount for cash. Risks associated with collection may or may not be transferred to the factor. This provides your business with the case flow sooner. If you work with a factor, be sure the company is a reputable one that will not destroy your customer relationships through problem collection tactics. Ask for references, check them, and negotiate terms. Be sure you get the best deal possible, taking into consideration issues such as the amounts payable and the credit history of your accounts.

Leasing Companies- By leasing equipment, you avoid having to pay a large sum all at once for a purchase, and also avoid owning outdated equipment. Review the leasing agreement carefully and check the tax effect, to make sure the deal is not too expensive compared to other types of financing that could give you ownership of the equipment.

How have you thought about financing your business?

Good Business Practices – Lower Your Risk Level

When small businesses fail, it is often because they don’t have enough money to operate or grow. Lenders and investors are eager to work with responsible business owners that provide a minimal risk to them financially. They often will require personal information about you and those connected to your business. While reviewing your provided information they will be looking for competence in your industry and also how much they will be able to trust you.

Ideally you will want your application to show than you are a low risk candidate, and this is best achieved by making sure your application is truthful, accurate and complete.

Plan ahead. Make sure your personal life, your credit history, business plan and operations are in order just in case. With these proper preparations and by building relationships with local banks and loan officers, you will have a much better chance securing your funding when the time arises.

How have you prepared for you future?

No Credit? Bad Credit? Beware of Loan Scams

Advance fee loan scams target individuals and small business owners who are desperate to get a loan and often take the victim for thousands of dollars.

Most people stumble upon the scam online or learn about the bogus loan offer from ads in local publications and online through classified sites like Craigslist. Often, an advance fee loan scam website will be created and taken down within a couple weeks only to be replaced by another operating under a different name and fake business address.

The websites look professional and might even put the victim through the rigors of filling out loan application forms—often requiring the victim’s bank account and Social Security numbers. Eventually victims are told they are approved for the loan and just need to pay as much as thousands of dollars upfront via money order or wire transfer to pay for insurance or collateral. Those that pay, never get the promised loan and are even sometimes tricked into giving the scammers even more money. 

BBB advises cash-strapped individuals and small business owners to recognize the red flags of an advance fee loan scam:

• The lender has a bad reputation—or none at all.  Research the lender thoroughly online and with your BBB. Most trustworthy lenders have an established track record; be wary if you can’t find much information about the lender online.
• The lender is not registered in your state to do business. Check with your state financial or banking regulators.
• The lender asks you to wire money or send a money order—such as for insurance or collateral—before you can receive the loan. You might be told to wire money to another country, consider this yet another red flag.

If you’ve become a victim of an advance fee loan scam, contact your local Better Business Bureau and report the incident to your police department.