Personal Finance

5 Alternative Funding Options for Small Businesses During COVID-19

Despite the $349 billion allocated to small businesses in the U.S. Small Business Administration’s Paycheck Protection Program, an overwhelming number of business owners across the country have found themselves on their own. They have received nothing. Some were told they had missed the first round of funding and then watched as institutions like Harvard and large public companies received millions of dollars.

Between social distancing practices, intermittent shutdowns, and disappointing stimulus packages, devasted business owners are trying to stay afloat and get to the other side of this crisis. To make matters worse, lender and investors that are typically more than happy to work with small business owners have put temporary holds on new funding. This has caused business funding options to be even scarcer than usual.

Here are a few different options if your business needs quick capital to boost cash flow and keep things running as smoothly as possible:

1.     Friends and family

One of the most common ways business owners finds funding to start their company, manage unexpected costs, and stay afloat during difficult times is borrowing from friends and family. The biggest advantage of this source of cash is that it typically involves flexible terms and quick capital. Especially, if you already have a family member(s) involved in your business, this option may make sense for you.

2.     Merchant cash advance

A merchant cash advance is not really a loan. It is actually a cash advance based on your business’ future credit and debit card sales. Many business owners have turned to this option because they can have cash in their business’ checking account fast – sometimes in as little as 24 hours. Another advantage is that merchant cash providers evaluate applicants differently than traditional lenders, making it easier for businesses that struggle with bad credit or are considered high risk to be approved.

3.     Unsecured personal loan

Although many lenders have put temporary holds on funding small business loans, there are still online lenders ready to help. These alternative business lenders can offer your small business a fast, unsecured personal loan. The advantage of this option is that they require minimal underwriting and business financials. You might simply need to provide a few years of tax returns and a personal credit check.

4.     Refinancing short-term debt

This process involves taking out a new long-term loan, so you can use the funds to pay off your short-term debts (e.g. business credit cards, business lines of credit, etc.). In truth, it might be difficult during this crisis to find a lender willing to help you consolidate or refinance your business loans, but if you can it will help you lower your monthly payments and save money in interest charges. It will also free up cash for you to fund day-to-day operations during this time.

5.     Negotiate terms with vendors

Another option is to negotiate terms with your vendors; they are likely also feeling the stress of the economic shutdown and really need to get paid too. With so many businesses in a tight spot right now, they might be willing to stretch your payments over a longer period of time. Depending on your situation, you might also want to see if they will settle outstanding invoices now at a discount.

Every business is unique. Not all of the above business funding options will be right for your business. The key is to thoroughly understand your business’ financials, research all of your options, and then choose the option that will help your business during these turbulent times (without incurring excessive debt).

Author Bio: Michael Hollis is a Detroit native who now lives in Los Angeles. He is an account executive who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, scientific dating… But his favorite job is the one he’s now doing full time — providing business funding for hard-working business owners across the country.