W EEKLY EDITION JUNE 21, 2017
Financing Your Business … continued
(Based on a Dun and Bradstreet article entitled "Alternative Loans for Business." The full text and additional
information can be found online here http://accesstocapital.com/resources/alternative - loans - business/ )
• Online lending
Primarily, there are two types of online lending that show major signs of stability and growth — peer - to - peer lending
and online platform - based business lending.
o Peer - to - peer lending rolled out in 2005, as a solution to a vexing problem for business borrowers: "Where can
I get a loan if a bank won't give me one?" A decade later, P2P has really hit its stride, with lending industry
analysts estimating the market will grow to $350 billion by 2025 . Segment leaders include Lending Club and
Prosper at the top of the list, but there are a burgeoning number of competitors looking to satisfy borrower
demand for online lending options.
o Online Platform - Based Business Lending (OPB)
Online Platform - based Business lending, or "OPB" is defined as loans to businesses t hat provide a lump sum
amount in exchange for a share of future transactions/sales. Much like the structure associated with venture
capital deals, the upfront money does come with financial strings attached that go beyond simply paying off a
loan — OPB lenders want a cut of a company's futures revenues, too. The analytical firm Research and
Markets calls OPB lending "a purchase and sale of future income" that primarily aims at businesses "having
strong credit card sales like retail, restaurant and service industry."
The sector is humming along, as business borrowers seem more than happy to share future profits for a loan
deal now. OnD eck, the current segment leader in OPB small business loans, has delivered $4 billion in loans
since 2007, estimating more than 74,000 jobs and $11 billion in U.S. economic impact.
For borrowers, the combination of lower repayment rates (relative to b ank loans) and more convenience, both
P2P and OPB loans are well worth a look.
• Merchant Cash Advance
For business owners who can't get a traditional loan, and who may have less than stellar credit, a merchant cash
advance is another route to alternative financing. MCA's are not a loan. Instead, this form of funding is deemed as the
sale of a company's future credit sales at a discount. By and large, me rchant cash advances are short - term (usually 90
days or so), with regular, even daily payments made by the borrower, usually straight from the company's bank
account, or from a fixed percentage from each company sale after payment is made by the customer . The good news
for borrowers is credit can be approved quickly, without the onerous and volume - heavy paperwork associated with
traditional bank small business loans. The downside is that interest rates linked to such loans can be heavy, with many
MCA r ates over 20%.
• Factoring
Small business factoring is cited by many industry observers as the "smart alternative" to bank loans. Just like
merchant cash advances, fa ctoring can be a viable option for small business owners as factoring financing approvals
aren't based on the business owner's credit health, but on the company's clients' credit health. Factor financing is also
good for small firms facing a cash - flow c runch or slow - paying clients. With factoring, those companies can sell their
customer invoices to so - called "factor companies," that, after approving the deal and weighing the client's credit, will
deliver up - front payments against client invoices and ac count receivables, of up to 90% of the total amount owed by
the customer. After the client makes the total payment owed, the factoring company remits the balance, and tags on a
processing fee.
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