Qualifying Criteria For Alternative Business Financing

In recent years, a host of alternative financing options have emerged offering loans that are faster, more flexible and more affordable than traditional lenders such as banks. One of the most important advantages of alternative financing is that the lending criteria required by these alternative options are far less restrictive than those that traditional banks require. Read our blog on how banks are no longer the first port of call for businesses needing fast finance, Beat the Bank: Avoid the obstacles of traditional business loans. Let’s take a look at what some of these alternative financing solutions generally require from borrowers:

Peer-to-peer lending (P2P Lending)

Peer-to-peer lending is an innovative way potentially to secure a business loan at a preferable lower rate. However, it may not be for every business. P2P lenders expect to get a return on their investment – repayment of the loan with interest – within the specified time. Therefore, their criteria for evaluating creditworthiness are not radically different from traditional bank loans. A business that does not qualify for a bank loan will likely struggle to secure a P2P loan.

Crowdfunding

Crowdfunding is an excellent way to raise capital for trailblazing innovations that may be deemed too unconventional or risky for banks. The problem is, a business may show excellent fundamentals and be well poised to capture additional market share, but not operate in a sufficiently “sexy” sector. Crowdfunding therefore remains something of a niche way to raise cash. Crowdfunding can also be limited by the relatively modest amount that can be raised, given the small sums contributed by each funder.

Merchant Cash Advance (MCA)

A merchant cash advance – a loan in the form of a lump sum advanced in exchange for a percentage of future credit or debit card revenues – tends to be subject to rather modest loan criteria. For example, a business with a healthy turnover is in a favourable position to secure an MCA, as it is expected to generate sufficient revenue to repay the advance. A poor credit history and inadequate collateral may be less of a hurdle to securing an MCA than to raising a bank loan. A merchant cash advance may therefore be a viable option for a business that receives cash payments if it needs to address cash flow issues very quickly or may not qualify for a bank loan. Read our blog on The Five Most Common Causes of Business Cash Flow Problems, Most Common causes of business cash flow problems However, because of the risk to the lender (MCAs are loaned against projected cash sales rather than current or past performance) MCAs can be very expensive, and can sometimes involve additional charges or penalties for slow repayment.

Microloans

Microloans can be a fast, efficient way to raise cash, for the short or medium-term. They generally don’t require as much scrutiny as a traditional loan, and credit history requirements may be less rigorous. Loan approval also tends to be relatively fast, and it may even be possible to apply for a loan online, with minimal paperwork. However, there’s an obvious downside. Microloans tend to be more expensive than bank loans. For this reason, they may not be a first choice for many businesses. Microloans are also unsuitable for financing large projects.

Invoice discounting

Invoice discounting takes the form of a loan on accounts receivable. In other words, the debts owed to a business are used as collateral for a cash loan. The process is simple: a loan is advanced based on the value of a company’s invoices. Invoice discounting offers the benefits of flexibility, transparency and comparatively low charges. Even more encouragingly, lending criteria for invoice financing tends to be relaxed in relation to many other alternative financing solutions.

Bizcash: Leading the way

In South Africa, Bizcash has emerged as the country’s leading specialist invoice financing company, with a slight twist. Bizcash provides unique benefits such as:
  • A revolving credit facility – No need to reapply for every loan taken. Your account simply gets topped up by your repayment amounts.
  • Flexible repayment terms – You select your repayment terms, ranging between 1-6 months (rates vary on the selected term).
  • Highly affordable rates – From as little as 1.6% per month.
  • Quick turnaround times – Facility approvals as quick as 1 day from application and cash payments made within 48 hours from approval.
  • Pricing that is upfront and transparent – No hidden costs.
  • Early settlement rebates – Only pay for what you use.
  • Quick & easy – Complete online application.
Bizcash also boasts one of the highest approval rates in the country. To pre-qualify for an Bizcash loan, your business needs to:
  • Have an annual turnover of R1 000 000
  • Be profitable
  • Be in operation for more than 2 years
  • Generate debtor invoices