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Although the Paycheque Protection Program (PPP) ended August 8, 2020– with a lack of clarity as to when it could be relaunched – companies still need capital.
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Although more than 5 million PPP loans have been approved, representing $ 525 billion, according to Small Business Administration (SBA) data, this is still not enough.
House Democrats are proposing to allow second loans to small businesses, but with some restrictions: they must have fewer than 200 employees and have experienced a 25% reduction in quarterly revenue year-over-year due to of the pandemic.
However, before waiting for a stimulus package to be adopted – and even if it is – companies should consider other alternatives.
Six additional financing options
1. Financing and equipment rental
This isn’t a traditional loan, but if your business needs equipment – maybe even updated equipment to accommodate new Covid-related sanitation or social distancing rules – consider working with the manufacturer or distributor to lease the equipment rather than using the product from another loan to purchase it.
For example: furniture, a pizza oven, an x-ray machine, and construction tools can all be rented.
Leasing is similar to borrowing, except that the manufacturer or distributor owns the asset and leases it to you for a monthly fee, often with a lower payment than a loan. Most leases have a fixed interest rate and terms vary.
If the leasing company’s terms don’t match your criteria, you can seek equipment financing from several other sources including banks, credit unions, online lenders, and even the SBA based. several factors, including your creditworthiness.
2. Support for marketing and IT salespeople
Thanks to programs launched earlier this year by major brand name vendors, entrepreneurs are able to explore some relief from the “softer” expenses associated with running a business, including marketing and IT.
Some of them may be grants, discounts or more attractive terms on services or even on equipment.
For example: Google offers $ 340 million in advertising credits for small and medium enterprises and Yelp waives advertising, product and service charges for catering and nightlife businesses.
Large IT vendors have traditionally offered special rental options for businesses. Earlier this year, Dell, HP, and other technology vendors announced special funding and deferred payments for partners and customers.
Ask your marketing or IT resource if there could be any relief in these areas.
3. Borrow from friends and family
Financing from acquaintances and relatives remains one of the main sources used by small businesses to access capital. Same Jeff Bezos borrowed nearly $ 250,000 from his parents to launch Amazon in 1995.
However, as a business owner, you must decide how to structure the investment. If you intend to make regular periodic payments and demonstrate your commitment consistently, then a loan makes sense.
If you don’t want to make payments, offering an equity stake is an option. Of course, it is difficult to assess the business on a regular basis in the event that a friend or family member is curious about the current valuation of the business and the value of their stake.
To avoid embarrassing situations and communication issues, it is best to err on the side of communication over how you use this infusion of capital.
Related: 4 things you might want to do now that your PPP loan is paid off
Factoring is not a loan, but rather an advance on the value of your business accounts receivable.
A factoring company is a third party that is willing to buy some or all of your receivables at a discount. The factor then owns the unpaid invoices and collects them from your customers. The factor benefits from the difference between the discount rate negotiated to buy back the receivables and the entire amount received from the customer.
If you’re a retail business where customers pay at the point of sale, factoring won’t work for you.
If you’re not a retail business, but have several large customers who buy from you on specific terms and those customers pay their invoices regularly, factoring might work well for you. The factoring company buys back your receivables so that you can get cash.
5. Not-for-profit micro-lenders
Several state, regional and municipal governments, through their economic development initiatives, offer microloans to support local businesses and their communities.
Eligibility requirements vary and some of the loans have no interest. Some programs actually offer grants, which is a loan that does not have to be repaid.
This type of program benefits a business that can leverage relatively small capital to create larger opportunities that create jobs and help grow the community.
In addition, the company can take advantage of the association with the economic development organization to promote publicity and goodwill, which will hopefully lead to even more customers.
6. Alternative Small Business Lenders
Businesses should consider alternative lenders who have fewer requirements than banks in order to get loan approval quickly.
Cash can be available as working capital in just a few days, and without the documents, such as credit reports and tax returns normally required when applying for loans from traditional banks.
Diversify your lending avenues
To take advantage of all the loan or financing options available, small businesses need to be creative. Instead of waiting for a second round of PPP, they need to be more informed about where they seek finance and which lenders they choose.
Harnessing a combination of sources is the way to survive in these uncertain times.