Alternatives to Traditional Business Loans

Money and time are typical challenges for different companies. Business loans are effective solutions to shortages of time or cash and have direct and indirect benefits for your bottom line. A food business can buy equipment to produce better quality dishes at a lower cost. New machines also have depreciation expense that is a write off to lower your taxable income.

Sounds great, but getting approved for financing can be difficult. Here are some of the common hurdles that entrepreneurs face:

● Lack of Personal or Business Credit: Established companies and startups alike have poor or limited credit histories. Some business owners use their personal credit to finance business matters, which exposes them to more risks in case of default. Sole props must rely on strong personal credit.

● Income: Two years of business tax returns with a positive trend are required by most lenders.

● Collateral: Many startups tend to be in fields with limited or unfavorable collateral, such as technology firms or restaurants. Lenders prefer to collateralize a loan with equipment, real estate and cash rather than tables,chairs or food.

● Industry: Banks view restaurants, construction, bars and medical offices as high risk loans. These industries may seasonal cash flow, high A/R or greater liability. .

Has your business loan been declined for any or all of these reasons? You have several alternatives that require little or no credit.

Equipment financing makes it easy to determine collateral, which also eases some concerns about credit. Your industry is also not a factor and lenders focus on your ability to repay the equipment loan alone. Unlike a general purpose loan or line of credit, a bank can lend money on a pizza oven and feel more secure knowing how the money is spent and that there is collateral coverage.

Specialty companies and banks each offer equipment loans. The loan officers work closely with manufacturers and can often speed up approval or push through a borderline application in some cases. Make sure to ask about trade in options to keep pace with changes in technology.

You should work with a CPA to manage capital equipment from a tax standpoint as well. In accounting terms, old machines that have been paid off no longer have a ‘useful life’. This equipment may not be productive and has no write off for depreciation expense. Conversely, new equipment can improve and have tax benefits. Companies should consider these factors to maximize the ROI of equipment loans.

Receivables affect your cash flow and make it difficult to meet payroll, surprise expenses or other overhead. As a solution, you can sell your A/R to a factoring company for quick cash. The factor buys your receivables for a discount percentage, which will vary based on who the A/R is from and how long the receivable is outstanding. A/R from larger corporate that is 30 days out will fetch a higher % than individual accounts in the 60 day bucket.

Companies can also use A/R financing as leverage to expand. A medical office can pounce on discounts for new billing software or technology by selling pending payments from insurance companies to a factor.

Focus on selling A/R with higher profit margins. In basic terms, selling invoices with a 20% margin at 85 cents of the dollar still results in a 5% net.

A company can also get short-term capital by borrowing against future credit card sales. Your credit is not an issue, as the history of credit card receipts is what determines the decision. You will repay the loan plus a premium as a % of daily credit card sales over 6 months to 1 years. Confirm there are no prepayment penalties before signing.

As an example of merchants loans in practice; restaurants could use the money to prepare for catering or special events. The cash buys decorations and hires entertainment before you realize revenues. Merchant loans can also supplement lines of credit or business credit cards to cover shortfalls.

Business owners can use equipment loans, A/R financing and merchant loans in several ways. Each of these business loan alternatives has value at many stages of a company’s growth.

What are basic bank accounts - A knowledgebase

Basic bank accounts are special types of bank accounts in the UK for people who can’t be able to get regular bank accounts. It is important to note that it is harder to get a regular bank account in the UK than in the US. This can be attributed to numerous restrictions in the UK's banking industry barring most people (especially those with poor credit scores/rating) from getting regular bank accounts. Basic bank accounts solve this problem.

As the name suggests, basic bank accounts offer you basic banking i.e. a place to store your money and send money from. They were created for people who were either new to the country with no credit history or had accumulated a bad credit score as a result of bad debt. As such, these "bad credit bank accounts" do not offer overdraft facilities or in-credit interest. Most banks offer their basic bank account holders a debit card for making payments in regular and online stores. You can also be allowed to set up direct debits which is great because it makes paying bills cheaper.

Contrary to popular belief, basic bank accounts aren’t 100% free of charges. Just because account holders don’t have access to credit doesn’t mean they won’t be charged some fees. The accounts usually attract occasional charges i.e. you will be charged for attempting to make payments when your account balance is insufficient. Most banks usually charge an unpaid transaction fee not exceeding £25 a time. It is therefore advisable to know exactly how much money is in your account before you attempt transacting.

Basic bank accounts aren't publicised by banks simply because banks don’t stand to make a lot of money from basic accounts. Unless you make the mistake of using the card when you don’t have money, banks don’t stand to gain anything from your basic bank account. In fact, the accounts attract more cons simply because of the workload the accounts attract (administration costs) without bringing any notable returns. Unless you specifically request for a basic bank account, bank staff don’t offer the account as an option for individuals with bad credit.

You may be wondering why banks bother offering basic bank accounts if they aren't good for business. Well, the answer is simple; bankers know that they can be forced easily by legislators to offer the accounts if they refused to offer them. Such a move would have serious consequences given the fact that bankers would have already lost the goodwill of the people and legislators.

How to open/apply for a basic bank account

As mentioned above, basic bank accounts are for individuals who have poor credit history which is usually caused by bankruptcy, serious defaults or CCJs. The accounts are also available for individuals with no credit history i.e. basic bank accounts for those with no credit history. If you fit in the above description, you can open a basic bank account. Although there are a few unique exceptions, anyone can get a basic bank account. The accounts are specifically meant for people who can’t pass credit checks for standard bank accounts.

It is however worth noting that you don’t have to have be in financial/credit problems to be a basic account holder. You can open a basic bank account to simply help you manage money better. You should however be specific or the bank might offer you a standard instead of a basic account. The only group of people who aren't allowed to operate basic bank accounts are people who have had fraud criminal convictions

To open a basic bank account, you need some form of identification as is the case when opening a regular bank account i.e. a national identification card to current passport. You need a current European Union (EU) member state ID, a current UK photo card driving license or full paper driving license, an ID card issued by Northern Ireland’s Electoral Office, a benefits book or benefits entitlement letters including child benefit, pension, disability, income support and job seekers allowance or a HMRC tax notification or an assessment letter.

In case you have problems providing the above documents, you can use other ID forms. You can visit the Money Advice Service website to see the list of all the requirements you must meet to open a basic bank account with all the major banks in the UK. In case you are unable to provide any acceptable forms of identification, you can contact the respective bank and explain your situation to see if you have any other options. In a nutshell, you shouldn't have any problems applying for a basic bank account in the UK if you have the right ID documents and you don’t have any history of fraud.