5 Commercial Financing Options for Businesses

It’s not hard for an established business with strong revenue and cash flow to secure a commercial bank loan with favorable terms, but what if you are looking to start your own business? In today’s lending market, it is extremely difficult for you to get a bank loan for your start-up business. Thankfully, commercial financing options are not as limited as they were in the past. Here are five commercial financing options that can provide you with the capital you need for your business.

401(k) 
If you have money in a 401(k) from a previous employer, then you can take money out of your 401(k) to finance your start-up business. Provisions in the tax code allow you to do this without receiving a tax penalty if you go through the appropriate process. Just make sure you follow the advice and guidance of an accountant or tax attorney.

Purchase order financing 
This form of financing allows you to get the capital you need without going into debt or giving up some equity in your business. If you have a large purchase order but do not have the capital to fulfill the order, then you can get a cash advance from a financing company. When your client receives their order, they will pay the financing company. The financing company will forward the balance of the payment to you minus their transaction fee.

Factoring
This is like purchase order financing, except this is a cash advance on accounts receivables. If you have already delivered a product to a customer and must wait 30-60 days for a payment, then you can get a cash advance from a financing company. Your client will make the payment to the financing company who will then forward to payment to you minus their fee. Factoring services are good to have if you are a small business that doesn’t have an accounts receivable department.

Angel investors 
If you don’t mind giving up some equity in your business, then attracting angel investors to put money into your business is a good option. It will take some persuasion to get angel investors to invest in your business. You need to know all aspects of your business, your financial standing, and your market.

Credit Cards
Using credit cards should be your last option in funding your business because they have high rates of interest. Falling behind in payments will ruin your personal and business credit score and can hamper your ability to get future loans. Only use credit cards if you feel comfortable with the payments.

Other commercial financing options include family and friends, crowdfunding, and microloans. Make sure you understand your options and how obtaining financing will affect your business. For guidance, you can seek the services of your local SBA organization.