19 Aug Overcome Supply Chain Challenges with Alternative Financing
Managing your supply chain feels more like crisis control than streamlined logistics in today’s economy. The disruptions keep coming with global events, rising freight costs, labor shortages, complicated regulations, inconsistent suppliers, and cybersecurity threats. Leaving you without the necessary materials and a challenging position for your business.
You can’t control the global economy, but you can respond to these challenges strategically using alternative financing. It empowers you to meet deadlines, satisfy customers, cover operational costs, and grow your business without waiting on slow-moving banks or supply chain bottlenecks.
Why Alternative Financing Works
When your supply chain falters, your capital gets tied up in undelivered products. You don’t have the cash to reinvest in new inventory or cover expenses. At that moment, having a source of capital makes all the difference. Alternative financing offers multiple ways to access needed funds quickly and flexibly.
A Timely Solution
Alternative business lenders design funding options for speed and responsiveness. They streamline the application and approval process so you receive funds quickly. Depending on the type of financing, you are looking at a couple of weeks or even days to secure capital.
Alternative lending brokers also understand that repayment timing looks different for each business. Most loan terms are between three and 24 months, but the repayment schedule can be tailored to your cash flow. For example, you repay a merchant cash advance through a percentage of your card sales, so loan payments change with your revenue.
Alternative financing is an option when you need access to quick funding that accounts for your business’s ebbs and flows.
A Flexible Option
You have many possible ways to use additional funds during supply chain issues. After all, the stress caused by delivery disruptions impacts every aspect of your business. Alternative financing provides flexible capital that you can use to cover payroll and operating costs, upgrade equipment, refinance debt, purchase inventory, and fund growth initiatives.
Alternative business lenders are also flexible about their approval process. Where traditional banks might disqualify you based on limited or poor credit history, these funding options look at your revenue, growth, and assets to determine if you qualify. Alternative financing remains a flexible solution even if your business is floundering from supply chain issues.
Lending Options for Supply Chain Problems
When you’re looking at how to bridge gaps in your supply chain, it helps to understand the types of alternative financing that align with this specific challenge. Here are a few worth considering:
1. Accounts Receivable Financing
When you are waiting on invoices because of a disruption in your supply chain, accounts receivable financing allows you to secure a percentage of the amount owed upfront. A small fee goes to the lender when the customer pays the invoice.
2. Revenue-Based Financing
Consider revenue-based financing if you maintain consistent revenue but need additional capital to replace inventory stuck in a warehouse. You secure funding quickly and repay the loan amount as a percentage of your revenue.
3. Merchant Cash Advance
A merchant cash advance is an excellent option for card-based businesses looking to fund solutions to their supply chain problems. Maybe you decide to personally ship your items, switch suppliers, or buy inventory in bulk. You secure funds quickly with a merchant cash advance, execute your project, and repay the loan amount through a percentage of your card sales.
4. Business Line of Credit
If you face unpredictable supply chain problems, like increased shipping costs, having a business line of credit is a cushion to address expenses and protect your cash reserve. Like a personal line of credit, your business loan broker will approve funds you draw on as needed. Then you repay only the amount you have borrowed.
5. Asset-Based Lending
Asset-based lending provides a line of credit based on the value of your equipment, real estate, inventory, or accounts receivable, regardless of the supply chain issues. So even if you have difficulty getting your inventory where you want it, the value of those products can help you access funding.
6. Equipment Leasing
Consider leasing your equipment when you are struggling to cover the costs of purchasing, maintaining, repairing, upgrading, or storing your tools, technology, and machinery. You can even sell your current equipment to an alternative lender to then lease it back to you. This financing option frees up capital and lowers costs without compromising your access to the tools you need.
7. Bridge Loan
Consider a bridge loan if your supply chain issue has a predictable end in three to 18 months. This type of financing is designed to quickly cover gaps until you secure permanent financing, like a mortgage for a new location, or an influx of capital, like repaid invoices.
Real-World Manufacturing Example
You’re running a mid-sized manufacturing company in Illinois. You rely heavily on international suppliers for components, but recent port delays have pushed your lead times from 30 days to 90. Meanwhile, your clients demand faster delivery and threaten to switch to competitors if you can’t keep up.
Rather than waiting for your usual supplier, you switch to a domestic vendor with shorter lead times to solve the timing problem. However, this vendor has higher costs, and you don’t have enough capital to place a full order.
You talk to nonbank lending experts in Chicago about alternative loan options and decide on accounts receivable financing. You receive 60% of the value of your invoices to cover the cost of the new vendor, deliver your product to customers on time, repay the lender their fee, and use the rest of the clients’ payments to fund the next order.
That’s the kind of adaptability and power strategic financing gives your business. You turn a potential crisis into a competitive advantage.
When Choosing Your Financing
Alternative financing is a powerful tool, but every tool needs to be used in the right situation to be effective. Here are a few things to consider when choosing financing for your business:
- Speed vs. Cost: Fast funding is often slightly more expensive than traditional loans. Consider whether the return on investment from moving quickly is worth the money.
- Repayment Terms: Choose a solution that aligns with your cash flow. If your revenue is seasonal, tied to invoices, or relies on card sales, match your repayment options to your situation. Financing should relieve stress, not add to it.
- Plan for ROI: Consider how each financing option could transform your supply chain challenge into a chance for growth. Talk to your lender to decide which solution will generate the greatest return on your investment and the least stress on your business.
- Apply Proactively: Alternative lending secures funding quickly, but you must seek financing early enough into your supply chain challenges for the loan to make a difference. Speak with lenders about your approval well before issues, or maintain a line of credit to have time to let your financing work for you.
- Fees and Penalties: Before you apply, discuss the cost of any fees or prepayment penalties with your lender. Shop around for the best terms with different lenders and loans.
- Expert Lenders: Work with lenders who specialize in alternative business financing and understand your industry’s supply chain pressures. Reputable lenders will be responsive to your needs, transparent about the loan terms, and realistic about the best option for your business.
Success From Disruptions
Supply chain challenges aren’t going away, but they don’t have to hold you back. You can build a proactive and flexible business model with the right alternative financing strategy. And in today’s wildly shifting circumstances, your resilience and agility set you apart from the competition and on the path to long-term success.