Alternatives To Credit Cards For Any Size Business

Running a small business requires a lot of purchasing power – everything from products to technology solutions must be procured somehow. The answer for many business owners is to rely on credit cards; however, these lines of credit must be paid in full or else they accrue interest charges each month.

Few realize that there are a number of other alternatives to credit cards available to them. Certain financing options do not carry the overhead risks and drawbacks of using credit cards to open, maintain, or operate a business in an ever-changing business climate.

Here are our top 3 alternatives to credit cards:

1. Merchant Capital Loan

This smart selection usually originates from a payment processor, and has the strong benefit of being a scalable option. In a merchant capital loan, a business owner contracts with a payment processor to receive a set sum of money in exchange for a set percentage of future credit card sales within the business.

This arrangement is not considered a traditional “loan,” and is favored by SMBs because of its flexibility. Rather than a large bill each month, a small amount of sales – typically between 10 and 20% – is directed back to the cash-advancing entity before the business owner receives the proceeds of a credit card sale. That way, the advanced amount is paid back in small pieces over time, avoiding the “sticker shock” that comes with a big credit card bill.

Why it’s Better: Businesses get the equivalent of cash-advancing an entire line of credit at once, without the monthly stress of a large credit card bill.

2. Invoice Factoring

For companies that rely on invoicing for revenue flow, invoice factoring is a unique option. In this practice, a company sells its outstanding invoices (accounts receivable) to a third party company for a discount. This third party company then collects on the accounts to receive their loaned-out sum, as well as additional monies recouped through the discounting process. The business receives the benefit of versatile and liquid capital immediately while the lender receives the benefit of that additional discount for their efforts over time.

Why it’s Better: Once again, a business can access the whole sum of their borrowed money without a large monthly bill. Invoice factoring also allows them to satisfy a debt without tapping into existing on-hand capital.

3. Line of Credit

This financing option is the most similar to a credit card, but offers a few advantages. Lines of credit are generally for larger amounts than those offered by cards, and come with smaller interest rates as well.
Why it’s Better: Lines of credit cannot be misplaced the way a physical card can, and thus are less susceptible to fraud and other identity theft-mimicking crime inherent in business credit card use.

The Bottom Line

Determining which financing option is right for your business will require weighing the pros and cons of each method. Remember, however, that credit cards are only one path to capital, and for many it’s a very bumpy path indeed. Research these choices and you’ll likely save a substantial amount of time, effort, and money for your business.

CMS Funding offers a wide variety of products to borrow money through. There are many alternatives to credit cards that businesses should familiarize themselves with. Contact us today for your complimentary consultation!