Business bank overdrafts are an excellent financial tool, but are becoming difficult to obtain due to the banks reluctance to lend.
Any business owner knows it when they get refused or reduced for borrowing it becomes personal, but its just not you.
There are a number of fantastic business overdraft alternatives out there. Our guide to some common, as well as some lesser-known, alternatives to a business overdraft:
What are the alternatives to a business overdraft?
If you are finding that you increasingly depend on your business overdraft or availability has been reduced then it might be time to compare some overdraft alternatives which might help you budget better.
Before applying for any of these types of lending you should make every effort to repay your overdraft first.
Invoice Factoring
Invoice factoring is a type of financing that allows businesses to sell their unpaid invoices to a third party at a discount. This provides the business with an immediate infusion of cash, which can be used to cover expenses or invest in new opportunities. Invoice factoring can be a useful tool for businesses that have difficulty collecting payments from customers. It can also help businesses smooth out their cash flow by providing a predictable source of funding.
However, invoice factoring comes with some risks. The most notable is the potential for bad debt, as the business is still responsible for collecting payment from the customer. There is also the risk that customers may be discouraged from doing business with a company that uses invoice factoring, as it can be seen as a sign of financial distress. Overall, invoice factoring can be a helpful tool for businesses, but it is important to weigh the risks and benefits before deciding whether it is right for your company.
Invoice Discounting
Invoice discounting is a type of short-term financing that allows businesses to sell their accounts receivable (invoices) at a discounted rate in order to raise working capital. This can be a useful option for businesses that are waiting on payments from customers but need immediate access to funds.
When a business takes out an invoice discounting loan, they typically sell their invoices to a lender at a discount of anywhere from 5-15%. In exchange for the discounted rate, the business receives an upfront payment that can be used to cover expenses.
While invoice discounting can be a helpful way to improve cash flow, it’s important to keep in mind that it’s a form of debt. As such, businesses should carefully consider whether they can afford the fees associated with this type of financing before taking out a loan.
Fast Business Loans
When you’re running a business, there are always going to be unexpected expenses. Whether it’s a broken piece of equipment or an unanticipated marketing opportunity, you need to be able to act fast in order to take advantage of it. That’s where fast business loans come in.
These loans are designed to provide you with the funds you need quickly, so you can seize new opportunities as they arise. The application process is typically very simple, and you can often get approved for a loan in just a few hours.
Best of all, you can often get access to the funds you need within 24 hours of approval. So if you’re looking for a way to get the funding you need quickly, a fast business loan is definitely worth considering.
Merchant Cash Advances
A merchant cash advance is a type of funding that allows businesses to borrow money based on their future sales. The loan is repaid with a percentage of the business’s daily credit card sales, making it easy for businesses to make regular, small repayment without putting too much strain on their cash flow.
Merchant cash advances can be an excellent option for businesses that have difficulty qualifying for traditional loans, and they can be used for a variety of purposes, from covering inventory costs to financing equipment purchases. However, merchant cash advances typically come with higher interest rates than other types of financing, so it’s important to compare options and choose the one that will best fit your business’s needs.
Revenue Loan
A revenue loan is a type of financing that is repaid using a company’s future revenue. This can be an attractive option for businesses that do not have the collateral to secure a traditional bank loan. Additionally, it can be less expensive than other types of financing, such as equity financing.
However, it is important to remember that a revenue loan is still a debt obligation, which means that it must be repaid even if the business is unsuccessful. As such, it is crucial to carefully consider the terms of the loan before signing on the dotted line
Revolving Credit Facilities
A revolving credit facility is a type of loan that allows borrowers to draw down funds up to a certain limit and then repay the loan over time. This flexibility makes revolving credit facilities ideal for businesses that need to finance short-term working capital needs or seasonal fluctuations in cash flow.
In addition, the interest rates on revolving credit facilities are typically lower than those on other types of loans, such as lines of credit or term loans. As a result, revolving credit facilities can be a cost-effective way to finance business operations.
However, it is important to note that the interest rate on a revolving credit facility may increase if the borrower exceeds the credit limit or makes late payments. As such, borrowers should carefully consider their borrowing needs before taking out a revolving credit facility
Conclusion
Although business overdrafts are a useful tool for any business to have in place, it’s clear that they’re not your only option. Should you be unable to get an overdraft or your existing facility is taken away, some of these alternatives might work well for your business. They also could be faster to set up than a bank overdraft.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.