The most important thing to note here is that it can be very difficult for some businesses to avail a traditional business overdraft from major banks or financial establishments. It is seen that while some of the banks are removing their overdraft policies that are currently offered to small businesses, others are reducing the amount involved in business overdrafts. This is especially distressing for businesses that have an irregular income, such as those in the retail, tourism, and hospitality industry, because it can lead to a significant gap in their working capital.

Fortunately, there are many alternatives available to business overdrafts these days, which such businesses can avail to meet with their financial requirements. Below are 3 feasible alternatives to business overdrafts, which can help a business to maintain its operations smoothly.

Revolving Credit Facilities

Revolving credit facilities work quite similar to business overdrafts by offering a consistent source of funding to the company with a pre-set limit. In other words, it can be like a small business loan that is ready to be used as and when needed. Besides, the borrower is only required to repay the amount used, which makes revolving credit facilities a much reliable option to secure business funding as required.

Merchant Cash Advances

Merchant cash advances are a way of financing business operations in exchange for their projected card sales. It involves flexible repayment schedules and the option to top up the funds when a part of the advance loan has been repaid. The most amazing thing about merchant cash advances is the speed of processing the funds; the borrower can draw out cash within a couple of hours after setting up the account.

Business Credit Cards

Business credit cards can also be a good source to acquire some quick working capital. They work the same way as a personal credit card does, but come coupled with many business-specific features, such as expenses tracking and the option to link multiple cards to the same account. The main benefit of business credit cards is the amount of funding, which can be much flexible when compared to business overdrafts. However, note that the credit limit, as well as the interest rate, might vary from lender to lender.

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Both MRP II and MRP are predecessors of the Enterprise Resource Planning system or ERP, which helps a business to manage and monitor important operations of the company. The ERP system can help in planning the inventory, purchases, and sales, as well as monitoring the marketing, finance, and HR responsibilities. ERP is the most commonly used information system today, but many of the benefits of  MRP II have given the impression that it is more lucrative for businesses.

The Perks of MRP II

The computer-based information system can allow a business to create more detailed production schedules by integrating real-time data on the availability of materials and workforce, which in turn helps to better streamline the manufacturing process. While MRP focused on improving productivity for the company, MRP II takes it a step further by using a sales forecast based module. This helps businesses to aptly plan the required raw material quantities and labor as well as calculate the processing time to fulfill the estimated sales requirement. 

Manufacturing Resource Planning has all the features to effectively replace MRP. It not only delivers all the functionalities of an MRP system but also integrates better tools for planning production, forecasting demands, estimating sales, tracking inventory, managing bill of materials, and general accounting as well as scheduling logistics. In other words, MRP II offers a more realistic solution to what a company can deliver in a certain defined period. 

Some of the MRP II software versions also feature simulation options that allow a business to enter their desired variables and analyze how effective the outcomes would be. This helps to further provide quality assurance and managing any unforeseen demands. It is for this reason that MRP II is sometimes termed as a more extensive version of ERP as well. 

What’s more, MRP II can be used as a standalone system or alongside the ERP system as required. With that in mind, the latter option would be more beneficial to those businesses that do not involve any kind of manufacturing operations. An ERP system can help in customer relationship management, managing human resources, and asset management in such cases.

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A business owner can also choose a bridge loan to meet an unexpected need for cash to maintain smooth business operations. As there is no stigma involved in applying for a bridge loan, businesses can always go for this financing option when there comes a circumstance that requires some additional funding. This way, the business owner can be always prepared to effectively deal with all the financial requirements as they come. For instance, if there is a need to buy new equipment, a property, or manage the accounts payable and working capital, businesses can simply explore bridge loans as an alternative to borrowing from their cash resources to accomplish all their wants. Apparently, this short-term loan would benefit the business in the long term.

Choosing a Bridge Loan

Most small business owners would prefer contacting their friends and family to seek a short-term loan, or take some cash out of their personal resources to grab that quick opportunity. These options are very simple to manage and can be considered the easiest means to get some additional funding. However, you can also approach a lending institution that offers a bridge loan to meet your needs of business financing. This is, in fact, a more practical way of securing the funds, which allows you to follow a flexible structure to repay the loan.

When you are choosing a lender for a bridge loan, you should try to find one that has a well-established history in the field. The financing company should be able to satisfy your request in the most applicable manner, following industry-specific protocols and regulations. Besides, make sure that the terms and conditions are transparent and the adjudication process is simple. The approval process should also be streamlined and easy to understand.

Note that there can be a diligence period to approve a bridge loan in some cases, which can last up to more than a couple of weeks. Yet sometimes, your business opportunity might not wait for that long. That is why it is better to look for a lending institution, which can approve the funding quickly in one or two steps. However, the speed of granting the bridge loan should always come second to the reliability of the financing source.

Costs Associated with Bridge Loans

A bridge loan can seem to be a bit costly when compared to the other types of business financing options such as working capital or real estate financing. The interest rates can be anywhere between 15% and 25%, while there is also an added upfront fee of 2% charged by most of the lending parties. Then there can be extra fees and charges for arrangement, payout, and retirement of the loan. Therefore, it is always better to ask about all such backend charges before signing up for the bridge loan. However, the cost of financing over a few weeks or months can often seem much beneficial when you consider the long-term gains of meeting your immediate financial needs.

You should also be prepared to pledge collateral for securing the funds. Generally, lending establishments ask for a lien on any of your unencumbered business assets, while it can sometimes be backed up with a second lien on the business’ working capital or other tangible resources. You may be required to sign an agreement to work with the lending institution honesty and repay the loan as per the terms and conditions stated in the agreement too. Sometimes, a personal guarantee can also be pledged as collateral based on the amount needed as a bridge loan.

Repayment of Bridge Loans

As bridge loans are short-term, you need to identify and set up the means to repay the loan amount in due time even before applying for the funding. You can also provide details of the source of revenue that would be used to repay the loan to the lender to assert your credibility, which would facilitate the bridge loan approval process. Note that the lending party would be very favorable to a business that qualifies for an SBA loan or business line of credit. That is because such business loans are usually approved based on profit improvements.

The term of the bridge loan also has a bearing on its interest rates; the shorter the term, the lower the rates would be. However, it is very important to set a reasonable term based on your capabilities to repay the amount and not go for an unrealistic term just to reduce the charges. Sometimes, the financing company can grant an extension for repayments, but that would depend upon your relationship with the lender as well as your financial history.

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Most banks and independent lending bodies offer commercial real estate loans to businesses after analyzing the potential risk factors and credibility of the borrower. Note that the terms and conditions in this type of business funding can vary from lender to lender. The loan period for commercial property loans typically ranges from 5 years (or even less) to 20 years, while the amortization interval can be longer than the loan term. For instance, if a borrower applies for a commercial real estate loan for 5 years with an amortization term of 15 years, he/she would be required to pay monthly installments in the 5 years period that equals the amount as if the loan was to be repaid over 15 years. This is followed by a final lump sum payment to repay the balance loan amount.

Lending institutions mainly consider the value of the property put as collateral as well as the credibility of the borrower to approve the loan. Some banks and online lenders might also require the borrower to submit financial statements and income tax returns for the past 3 to 5 years, as well as a description of their loan-to-value ratio and/or debt-service coverage ratio.

Types of Commercial Real Estate Loans

There are different types of commercial real estate loans aimed at the different needs of businesses. The most common types of business financing include:

• Permanent Loans: These work like basic mortgage loans for a commercial property. Permanent loans usually have a five-year term and can feature a longer amortization period.
• SBA Loans: These loans are guaranteed by the Small Business Administration (SBA), which means there is often less risk for the lender. However, getting approval for an SBA loan can be a lengthier process.

Bridge Loans: These are short-term mortgage loans, which usually go from a 6-month term to 3 years. Bridge loans can benefit businesses that require some quick funding to resolve their immediate financial needs.

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