Working Capital Loan Choices to Replace Bank Financing

by

Stephen Bush

While success will be different for each business, there are several business financing choices available to consider as effective replacements for working capital financing and commercial loans previously obtained from banks which are no longer providing business finance services to small businesses. Small business owners are likely to hear reports from multiple sources about the increasing difficulty in obtaining business loans from banks. As a result, a prudent alternative is for commercial borrowers to explore whether there are effective commercial finance options to replace bank financing.

The failure of most banks to satisfactorily meet routine daily commercial loan needs is one of the chief ongoing criticisms reported by many small business owners. Even if there has been a long and prosperous working relationship with a bank, very few small businesses have the financial means to overlook the current business loan shortfall exhibited by most banks. One common (but incorrect) response is that nothing can be done to replace the traditional source of commercial financing although it does seem that the reality of less bank financing is acknowledged by many commercial borrowers. For most small businesses needing to explore immediate ways for replacing bank business loans, the three examples provided below are illustrations of practical small business finance strategies readily available to them. Working capital loans from non-bank sources that do not require commercial real estate or other assets as collateral are among the most useful options to replace business bank financing. This kind of business financing might be needed to replace a line of credit which is being reduced or eliminated by a traditional bank. Alternatively a business borrower might need additional commercial funding to buy inventory or supplies. For even the most successful business, a reliable source of working capital is a key ingredient for continued success. As noted both here and in media reports, traditional banks are no longer doing an adequate job of filling this critical role and need to be replaced by effective commercial lending sources. Accounts receivable financing is another practical business finance choice to replace bank financing. To bridge a cash flow gap between sales and payment from customers, this form of receivables factoring can be helpful. While this is by no means a new form of business financing, the major use has typically been by large corporations. Commercial borrowers are rapidly learning to adopt this effective financial strategy due to banks exiting their previous active role of providing small business loans. An equally useful commercial funding approach for businesses which regularly accept credit cards from their customers is generally referred to as a business cash advance or credit card receivables factoring. It is a way for businesses to receive cash now and gradually repay the amount provided by allocating a portion of future credit card processing toward repayment. None of the three working capital management options noted above are totally free of potential problems and complications. At the same time, it should be noted that the sudden lack of reliable bank financing for small business owners is itself a major complication and problem requiring a timely solution. Before finalizing any new arrangement for business financing, the advantages and disadvantages need to be thoroughly reviewed as with any other new business service.

Stephen Bush is a

small business financing

expert and has provided candid advice to business owners for more than 25 years. AEX Commercial Financing Group supplies

small business finance

and working capital management programs

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ArticleRich.com