A commercial bank loan is the most common form of funding. However, qualifying for this form of funding can be difficult for a small business. Banks prefer to lend to businesses with experienced owners who can demonstrate a history of profit and stability. Sometimes even businesses eligible for bank financing find the terms stifling.

Loans based on assets

This is similar to a credit line, but with some key differences. The main one is that the amount of money that you can borrow is based primarily on a percentage of the total assets that are being considered. Assets considered for this type of loan would typically be accounts receivable with some combination of machinery, stock and equipment.

The lender can provide up to 85% of the accounts receivable and up to 60% of the inventory in most cases. Asset-based loans are often used when a credit line is too inflexible, too slow or too unsuccessful.

Factoring

This form of financing fills a credit market gap because it creates an immediate cash flow based on invoices alone. It tends to be more flexible and qualifying for more than asset - based lending or bank financing is easier.

A factor buys receivables from your accounts and advances 70% to 90% of the total. Factoring is often used by service-based firms that have no collateral startups, seasonal-working firms, and fast-growing firms.

In other words, to finance your small business, factoring is a feasible option. It is also useful for businesses that have hit hard times and need cash flow to turn their business around.

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Merchant advances in cash

This form of funding is a solution for companies that struggle to secure traditional loans or need funding for a particular project. Cash advance providers purchase future income as opposed to factors (that purchase current invoices).

These suppliers offer a lump sum of capital to businesses. Unlike a loan, until the cash advance company recovers its advance and premium, you pay a set percentage of your daily credit card sales.

While this is a more expensive form of finance, it is a useful solution for firms like restaurants with strong credit card sales that need capital to grow their business or buy new equipment.

Purchase Order Finance

This form of finance generates working capital based on the purchase order of your customer to pay for finished goods or components. A Purchase Order Finance company pays for producing and shipping goods to your supplier so that you can fulfill a customer order.

You invoice your customer once you complete the order and send a copy to the P.O. Company of finance. Payment for that invoice is collected and returned to you, less a fee. This is a solution for businesses requiring increased cash flow to take on new business or expand their business.

These are just a few of the types of small business financing available. There are plenty of opportunities to explore that can free up cash and help your business grow. Whatever form of financing you pursue, the revenue you generate from expanding your operations can far outweigh the cost of alternative financing solutions.