3 Little-Known Financing Options for Business

Guest Post by Kali Geldis

There are more small business financing options available today than ever before, but small business owners need to be a little more savvy than they were a few years ago, when the bank around the corner was the one-stop choice for a small business loan or line of credit. Although a traditional bank loan, a line of credit, or an SBA-guaranteed loan might be the first thing that comes to mind when a business owner is looking for financing, they aren’t the only choices. Depending on your situation, there are other options worth considering. Let’s talk about three little-known financing options for business that are worth considering.

If not “little known,” it's safe to say these options are often overlooked and underappreciated by business owners as a reliable source of borrowed capital.

Trade credit

Payment terms from a vendor and supplier might not be a $100,000 small business loan; however, they are powerful ways to leverage credit and start building a strong business credit profile, particularly for a new business

Early-stage businesses struggle more to access borrowed capital than just about any of their more mature counterparts. Lenders want to see a track record of good credit practices that aren’t there yet, revenues that haven’t had a chance to flourish, and cash flow that simply isn’t consistent enough to support periodic payments. Fortunately, trade credit (or vendor credit) is often available to most businesses that request it and helps demonstrate how they can responsibly leverage credit to build a healthy and thriving business.

Before you apply for trade credit, make sure you do the following:

1. Confirm that the vendor or supplier will report your credit history to the appropriate business credit bureaus. If they don’t, you might be successful at building a strong credit history with that particular vendor, but it won’t help you build a strong profile. Whether or not they report to the credit bureaus might not be the most important criteria when choosing a vendor, but it’s certainly up there.
2. Make every invoice payment on time. The business credit bureaus look at the credit relationships you have with your suppliers in the same way they look at your history with any other type of small business financing. Making timely payments is the single most important thing you can do to build a strong business profile, so you have access to other types of credit in the future.
3. Take advantage of any early payment discount terms that might be offered. I know of more than one small business that is able to augment their payroll expense every month by taking the 10% discount offered if they pay in 10 days as opposed to paying in 30 days.

Business credit cards

Although business credit cards are very popular among small business owners, don’t overlook their value as an easy and convenient way to access borrowed capital simply because they are so familiar. Most businesses that offer products and services to other small businesses accept credit cards, and many utility companies will allow you to make payments with plastic too.

Business credit cards also offer another easy entry into business credit for early-stage businesses. The qualification criteria is much less strict than a traditional loan application, you only pay interest on the amount of credit you use, charges are itemized in your monthly statements making it easy to monitor and control spending. And spending limits will likely be increased over time as you demonstrate that your business will meet its credit obligations..

Depending on the business card you choose, many offer cash back on purchases, points for office supplies, or mileage and other travel benefits for business owners who need to travel as part of their business.

Friends and family

According to the Gardiazio Business School at Pepperdine University, 19 percent of the businesses they surveyed in 2019 for their 2019 Private Capital Markets Report looked to financing from friends and family for borrowed capital. This has been a pretty consistent number over the years, making loans from friends and family one of the most popular ways for both new and more mature businesses to borrow.

Borrowing from a relative might not be the first choice for most entrepreneurs and certainly has risks — an awkward Thanksgiving dinner or family reunion to name a couple of them — but if treated right, it is an option worth considering.

Here are a few tips for making a loan from a family member or old college roomate work:

• Don’t treat things casually. Formalize things with a contract that spells out your payment obligation including payment amount, payment frequency, and what happens if you miss a payment.
• Keep track of every payment and regularly report on the balance and status of the loan. Even though they might be a friend or a family member who loves you, make sure you are regularly communicating with them so they know you are serious and intend to repay the entire loan amount.
• Be prepared for some occasional unsolicited advice. It’s safe to assume they will be more invested and interested in your business now that they have some of their own money on the line. 

The takeaway 

For many business owners, borrowed capital is how they fuel business growth and fund other initiatives to build a healthy business. When looking for financing, don’t overlook options that might not equate to a lot of cash, but certainly offer a lot of value.

If you can creatively utilize smaller amounts of money to create bigger results, your business will be in a better position to respond to changes in the marketplace and have greater flexibility to meet your customer demands, all while maintaining a solid bottom line. Afterall, it’s creative problem solving that is the skill that sets the most successful small business owners apart and allows them to create wildly successful products and unrivaled services to meet their customers' needs.

Kali Geldis has a decade of experience guiding individuals through the confusing world of credit and finance. She serves as the Editorial and Marketing Director for technology company Nav.