The good news is that, despite the tight credit environment, there are many alternative and non-bank financing options available to companies that need a cash infusion, whether it’s to beef up working capital or help facilitate growth.

However, the bad news is that business owners often shy away from non-bank financing because they don’t understand it. Most owners simply rely on their banker for financial information and many bankers (not surprisingly) have only limited experience with options beyond those offered by the bank.

To help ease some of the fear that owners often have of alternative financing, here is a description of the most common types of non-bank financing. There are many struggling businesses out there today that could benefit from one of these alternative financing options:

Full-Service Factoring: If a business has financial challenges, full-service factoring is a good solution. The business sells its outstanding accounts receivable on an ongoing basis to a commercial finance company (also referred to as a factoring company) at a discount—typically between 2-4 percent—and then the factoring company manages the receivable until it is paid. It is a great alternative when a traditional line of credit is simply not available. There are a number of variables to a program, including full recourse, non-recourse, notification and non-notification.

Spot Factoring: Here, a business can sell just one of its invoices to a factoring company without any commitment to minimum volumes or terms. It sounds like a good solution but it should be used sparingly. Spot factoring is typically more expensive than full-service factoring (in the 5-8 percent discount range) and usually requires extensive controls. In most cases, it does not solve the underlying lack of working capital issue.

Accounts Receivable (A/R) Financing: A/R financing is an ideal solution for companies that are not yet bankable but have good financial statements and need more money than a traditional lender will provide. The business must submit all of its invoices through to the A/R finance company and pay a collateral management fee of about 1-2 percent to have them professionally managed. A borrowing base is calculated daily and when funds are requested an interest rate of Prime plus 1 to 5 points is applied. If and when the company becomes bankable, it is a fairly easy transition to a traditional bank line of credit.

Asset-Based Lending (ABL): This is a facility secured by all the assets of a company, including A/R, equipment, real estate and inventory. It’s a good alternative for companies with the right mix of assets and a need for at least $1 million. The business continues to manage and collect its own receivables but submits an aging report each month to the ABL company, which will review and periodically audit the reports. Fees and interest make this product more expensive than traditional bank financing, but in many cases it provides access to more capital. In the right situation, this can be a very fair trade-off.

Purchase Order (PO) Financing: Ideal for a business that has a purchase order(s) but lacks the supplier credit needed to fill it. The business must be able to demonstrate a history of completing orders, and the account debtor placing the order must be financially strong. In most cases, a PO finance company requires the involvement of a factor or asset-based lender in the transaction. PO financing is a high-risk kind of financing, so the costs are usually very high and the due diligence required is quite intense.

The message I am trying to convey is simply that financially challenged business owners should not be afraid to consider alternative or non-bank financing options. It’s a fairly simple matter to learn what they are, how much they cost and how they work. Alternative financing is a much better option than facing the challenges of growth or turnaround alone. It is a known fact that the vast majority of business failures are due to a lack of working capital—but it doesn’t have to be that way.

With a better understanding of these different types of non-bank financing, you’ll be in a better position to decide if they might be the answer to your financing challenges.

What is a business acquisition loan? This type of loan refers to the funds which are borrowed when one intends to purchase or merge with another business. It might be either by a private equity or a stock purchase. The lender takes note of certain factors before the applied loan is approved. The borrower’s credit history is not the only factor which is taken into consideration.

The lenders also consider the cash flow and condition of the acquired and the acquiring business during the time when the purchase is made. The management experience of the borrower is also considered since the lenders are trying to make sure that the borrower has the experience which can help him maintain the acquisition. You should also take note that this type of loan is a long term one. If real estate is included in the acquisition, 25 years may be the maximum term for this type of loan.

There are a lot of trials which a borrower would surpass before he is able to secure the business acquisition loan. Financing goodwill is one of the trials which a borrower has to outdo. What is goodwill? This stands for the profit which the business is expected to reap in the future. The profit should be more than the existing value of the asset.

There are a lot of lenders who are wary so they deviate from financing goodwill. Because of this, the amount of the necessary down payment which must be given so that the sale will be completed becomes higher. The borrower also has to solve the problem of the business transition risk. The transition risk is about the capability of the new owner to manage the business in the same manner (or in a much better manner) done by the previous owner. It also includes whether the employees will be terminated since there is already a new owner or if they will continue to work with the company.

The borrower should also work hard in order to convince the lender that there is a growth potential in the business. The condition of the business will greatly affect the acquisition loan. It should be determined if the business which is being sold is a mature one, declining market segment, or a new and rising business enterprise. This should be determined so one can anticipate how the change in owners will affect the business. Will the change of owners weaken the business or will it strengthen the market position of the business?

One of the reasons why a business acquisition loan is not granted is because the lenders are certain that the business will not thrive. Since the business will not be successful, the borrower may encounter difficulties in giving payments for the loan. Aside from that, a business which is improving will have a higher probability of being purchased again when it is placed into the market for resale. If you are hoping to apply for this loan, be sure that you know the truth about it so that you will not find yourself in trouble.

A lot of people have a dream of becoming their own boss. This is because having one’s own business entails one to have things his or her way which is just the exact opposite if one is an employee. Another reason for this is that by being the boss of one’s own company, one can have the right to boss and instruct other people around which again is just the exact opposite if one is to work as an employee.

Then again, one of the most important benefits that one can have by owning a business even if it is just a small business is that of financial independence. For starters, starting a small business is more often risky than not. This is especially true nowadays since the economy is kind of unstable which is why money is hard to grasp. Luckily, one can still achieve this dream no matter what reason one may has for wanting to have a business that one can call his or her own. And all that it takes in order to do so is for one to apply for a small business loan.

To be able to apply for a small business loan isn’t hard or nor impossible. As a matter of fact it is so easy to acquire since a lot of banks and financial institutions are willing to offer such loan. So the only problem that one will have is that of choosing which of these banks or financial institutions give the best business loan policy that one can afford and would be the best for one’s current situation. This part is the hardest part as it can either lead to success or failure. It will be a success if one is able to find the best deals out of all the possible business loan option.

On the other hand, it can lead to failure if one isn’t able to choose the right loan since choosing the wrong business loan can eventually lead to nothing but debts which in turn can lead to bankruptcy. And so with that in mind, one should by all means think of every possible situation and at the same time assess every possible business loan option. Since by doing so, one can prevent the worse or even the worst-case scenario.

Usually, to be able to get the best deal out of these business loans, it is of utmost importance for one to first take certain things into consideration. One of which is that of the total amount of loan that one really needs. This is important since if one’s loan isn’t enough, then one has to acquire yet another loan. On the other hand, if one’s loan is too much, then one will have the tendency to use the extra money into unnecessary things.

Unfortunately, both of these scenarios are terrible as it is both costly. And so, before one decides to apply for a small business loan, it is very important for one to carefully assess every situation that can affect the business financially both in the short and long run.