Although it’s hard to find much of a silver lining when thinking about the Great Recession – especially since some regions of the country haven’t fully recovered, and others might never get back to their pre-2008 levels of economic activity and growth – there is at least one significantly positive by-product: it created major disruption in the lending marketplace, which in turn has led to some unconventional business financing options. We highlight 3 of these below.
While peer-to-peer lending isn’t new, a convergence of two factors – the need for businesses (and small ones in particular) to raise capital, and the ease at which borrowers and lenders can connect via the internet – has thrust this unconventional business financing method into the spotlight.
However, it’s also true that for every peer-to-peer success story, there are many others that don’t turn out nearly as well for lenders, borrowers, or often both. We advise all business owners who want to explore this business financing method to proceed with caution, and not to make any assumptions – especially with respect to how much capital they’ll raise, and how long raising it will take.
Crowdfunding is similar in some ways to peer-to-peer lending, except that it’s much more accessible to “everyday folks” who may not have any investing or lending experience, yet are interested in an idea and want to help bring it to life. The motivation can be personal, financial, or usually a combination of both.
However – and again, as with peer-to-peer lending – crowdfunding success is the exception, not the norm. Even a quick browse through Kickstarter or Indiegogo reveals that the vast majority of campaigns fail to reach their funding goals (and often by a significant amount). Competition is fierce, and “investors” – whether they’re shelling out $20 or $200 or $2000 – are much more savvy now than they were even a couple of years ago, when crowdfunding was trendy and cool, and frankly many people invested for the sake of investing.
As such, businesses who want to explore this option should have a ready-to-go backup plan if and when the funding they need doesn’t materialize. This isn’t being pessimistic, it’s being realistic.
Purchase Order Financing (a.k.a. Factoring)
Purchase order financing is another unconventional business financing method – although the “unconventional” designation is less about this being a creative option, and more a result of many business owners not knowing that it’s a possibility in the first place.
Essentially, purchase order financing involves selling a purchase order to a lender in return for an immediate cash infusion – typically for 80 percent of the value. The customer to whom the purchase order is made out to pays the lender directly (within 45 days, 60 days, 90 days, or whenever payment is due). The lender keeps the principal, interest and any fees, and remits any residual amount to the borrower.
While purchase order financing can be viable for some business, it’s not without significant drawbacks – and at the top of the list is the very short loan term. As such, some businesses find themselves in a “debt spiral” where they’re obliged to depend on purchase order financing over and over again, just to fill orders.
A Simpler, Safer and Smarter Option
At Mulligan Funding, we proudly offer small and mid-sized business owners what we believe is a simpler, smarter and safer business financing method compared to those listed above: a working capital loan.
Unlike peer-to-peer lending or crowdfunding, our clients don’t have to anxiously wait to see if they’ll generate enough interest and raise enough capital. Once their application is approved and our business financing proposal accepted, we transfer 100 percent of the funds (not 80 percent or some other amount) within days.
And unlike purchase order financing, our loan terms can be up to a year, and feature low, manageable and automatic daily payments. As such, our clients don’t have to worry about raising capital again in a few months simply to stay afloat or fill orders. They have the time and freedom they need to make investments that increase their revenue capacity and profit potential.
To learn more about our working capital loans, and discover if it’s the right business financing solution for your business, contact us today. Your consultation is free, and there’s no risk or obligation to start an application.
If you're interested in learning more about the different types of loans, check out our FREE eBook "Working Capital Loans vs Conventional Business Loans" now: