Keeping an independent contracting business smoothly running is a challenge. Financing, for instance, can be tricky to secure. Small businesses like yours don’t have the cash flow that can compete with your bigger competitors. They may also have credit scores that they’ve built up ahead of you, giving them an edge in loan applications.
Cash flow problems are inevitable, and you’d need to secure a loan to address these shortcomings. With traditional financing difficult to obtain, where can an independent contractor turn for assistance? Alternative financing is the answer. These lenders specialize in small business financing, including personal loans for independent contractors.
You might want to consider the following forms of alternative financing when you hit a cash flow snag while working as an independent contractor. Three of these sources don’t require a business or personal credit score. The last one may require a personal credit check to qualify.
Invoice Financing
If you’re paid by term, you’ll find invoice financing to your favor. Also known as accounts receivables financing, this financial assistance will advance the money your clients still owe you in invoices. Factoring companies may finance up to 90% of the total amount pending so you can fix cash flow gaps created by the delayed payments.
Invoice financing does not require any collateral nor credit check on your part. This financing banks on the nature of the invoices themselves. Invoices are documents that represent cash that the borrower is yet to collect from their clients. Businesses have to wait for invoices to mature before claiming payment from their clients. However, the gap could result in cash flow problems that they have to rectify.
There are two forms of invoice financing – recourse and non-recourse. Recourse factoring passes on the liability of uncollected invoices to the lender, who is expected to seek out clients for payment. On the other hand, non-recourse factoring requires the borrower to repay the cash advance and take on the responsibility of debt collection.
In both cases, the lender will look at the credit score of every client that owes the invoices. Factors may decline to finance an invoice sent to clients with a default history. This history could mean that the lender or the borrower may not collect payment for that particular invoice in time.
Equipment Financing
Equipment is vital to any business regardless of scope or size. For instance, as an independent contractor, you’ll want to keep your computers in top shape. These devices are vital for bookkeeping, word processing, and storing digital versions of essential business documents.
Whatever equipment you use in your small business, they’re all subject to wear and tear. Over time, these devices will break down and would either require replacement or repair. Some hardware may be too old that repair would be more expensive than outright replacement. When that happens, you’ll need to advance cash for buying new equipment.
This is where specialized loans like equipment financing can help. Equipment financing will cover all expenses you expect to incur to acquire new utilities for your office. Generally, the lender will pay the vendor directly to save you time. All you need to do is handle the delivery of the new gear from the vendor to your office.
One of equipment financing’s advantages for independent contractors is its disregard for credit scores. Lenders consider the equipment you’re looking to purchase as the collateral to secure your loan. If you default, they’ll repossess those assets and auction them to repay your debt. However, you have to demonstrate the value of the equipment to your revenue generation in convincing the lender to lend you money.
SBA Microloan Program
The SBA Microloan program is part of the Small Business Administration’s initiative to make financing more accessible for small businesses and independent contractors. With a cap of $50,000 in financing, the microloan has the lowest borrowing amount among the three SBA loans available.
According to the SBA’s website, the microloan provides financial assistance for entities whose needs don’t exceed the established cap. These include non-profit organizations as well as micro and small enterprises. If approved, you can use the funds for various purposes in independent contracting, like purchasing office equipment, renovating office spaces, and boosting working capital.
Unfortunately, proceeds from an SBA microloan cannot be diverted to debt repayment or real estate acquisition.
Check out community lenders and non-profit organizations in your area that are accredited by the SBA to issue these loans. Although guaranteed by the government through the SBA, each creditor has complete control over the approval process. As a result, eligibility requirements may vary from one organization to another.
Lines of Credit
Last but not least, you can apply for lines of credit using your personal score. Lines of credit are the most flexible source of financing available for independent contractors.
With a line of credit, you have a revolving fund that you can borrow from when you need to. Unlike term loans, credit lines don’t compel you to borrow a fixed amount. Instead, you can partially withdraw from your total credit and leave some for future use. The borrowed amount goes back to the credit line when you repay what you’ve taken earlier.
One benefit of applying for a line of credit is convenience. You don’t have to go through separate approval processes each time you borrow. Because of this, lines of credit can also help independent contractors like you avoid stress. You just need to log in to your account, borrow money and receive the funds.
Without these alternative avenues of financing, independent contractors like you would have the most challenging time seeking out loans for emergencies. Traditional avenues like banks may require additional information and paperwork, but these may not guarantee approval. Meanwhile, your cash flow woes worsen while you work to find a lender to finance your needs.
Thanks to alternative financing, loans are now more accessible to businesses like yours that are not as large or stable as your more established competitors. Their approval processes are more straightforward, requiring minimal documentation. Approval can be as quick as 24 hours after submitting the required documents.
Because of these alternative financing, players in the gig economy, like independent contractors, can put their worries to rest. They can be assured that they have sources of financial aid when they’re in need.
