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Last week, we talked about your options for getting business financing and I mentioned non-traditional financing, but I got a question about what kinds of nontraditional financing are available to me. Well, there are lots. So over the next few videos, we’re going to dive into some of the options.
Before we start, I want to give you a few caveats.
First of all, these nontraditional options are going to be more expensive than a bank loan. So if a bank loan or an SBA loan is an option do that.
Second of all, because these are a little bit more expensive, make sure that you’re including the financing costs in any ROI (return on investment) analysis that you’re doing.
Third, if you’re funding operating losses, you have a bigger problem with your business. I understand you might need some money to get out of a tight spot, but really dig down and see what’s going on in your business to cause these losses.
And finally, as your general caveats, these are all relatively new or obscure products, Make sure you read the fine print, and understand what you’re getting into.
So let’s dive in and talk about some of the options. Again, we’ll cover more next week.
First of all, there are many new fintech (financial tech) companies offering loans. These are non-banks that are offering loans. They work very similarly to bank loans, except oftentimes they may want to take direct withdrawals out of your bank account. These can be very expensive. I saw one today when I was doing my research that had rates starting at 29.9%. So while they are relatively easy to get, they’re costly and the interest rates can rise dramatically if you miss a payment or there are insufficient funds when they go to do the withdrawal. So again, make sure you know what you’re getting into.
The second one I want to talk about is equipment financing or leasing. This is something very common for manufacturers, but all companies can do this. I see many companies leasing their computer equipment and printers and this is a great option for cash flow management. The equipment is typically the collateral. This doesn’t cover the costs of plant modifications, training, and installation. So make sure that you understand, and make sure you have a way to finance that. Finally, with this kind of loan, make sure you understand who owns the equipment at the end, and if there is any buyout cost, imagine if you’re a manufacturer and you have a $200,000 piece of equipment in your plant, you don’t want that to disappear after five or seven or 10 years.
I’ll be back next week and we’ll dig into more of these nontraditional financing options. This is Judi Otton with GrowthCast. And again, I’ll be back next week with a new Fiscal Fitness Tip of the Week.