5 ways your business can find cash

By The Wall Street Journal

The financial crisis on Wall Street is quickly spiraling down to small businesses, making it extremely difficult for them to secure from large banks the credit they need to start and maintain their operations.

Some businesses that have good relationships with banks are getting more scrutiny and higher interest rates -- such as 15% or more. Riskier borrowers are being denied credit altogether.

Aside from falling back on friends or family -- or charging up yet another credit card -- here's a look at five alternatives for getting extra cash to run a business in this economy.

'Peer-to-peer' lending sites

Several Web sites facilitate loans between individuals who don't know each other. Typically, the prospective borrowers create profiles that include how much they need to borrow, what the money will be used for and some credit history. Other individuals can browse the loan requests and make offers that include payment terms and interest rates. Prospective lenders also get risk assessments of the borrowers generated by the Web site based on the borrowers' credit histories.

These "peer-to-peer" lending sites include LendingClub, Prosper, RaiseCapital.com and Zopa.

On Prosper, for instance, 25% of borrowers are individuals running or looking to start businesses, says Chief Executive Chris Larsen. The site facilitates loans between individuals of $1,000 to $25,000, and interest rates on those loans right now range from 6% for those with the strongest credit ratings to about 30%.

Prosper, which has 800,000 registered users, is seeing more entrepreneurs with good credit scores signing up. "We're certainly seeing a steady increase of the quality of borrower coming to our site," Larsen says.

About 55% of the loans being funded are for borrowers with credit scores above 720, he adds, while only about 5% are for those categorized as subprime borrowers.

• Estimate your credit score

Community banks and credit unions

While big banks are being battered by the financial turmoil on Wall Street, many local banks and credit unions are far more stable. In fact, community banks continue to expand, although some have suffered losses on securities issued by troubled mortgage giants Fannie Mae and Freddie Mac, says Camden Fine, the chief executive of the Independent Community Bankers of America, an industry association in Washington.

Still, he says, even the community banks are more hesitant to lend to companies that lack rock-solid balance sheets.

• Ditch your bank for a credit union

Factoring and asset-based loans

Though certainly not a cheap route to capital, some banks and nonbank financing companies offer financing that is backed by a business's assets or accounts receivable.

So-called factoring, whereby a lender might, say, outright give a borrower 80 cents on the dollar for the company's accounts receivable, can be a good option for businesses such as manufacturers that are owed a lot of money by customers and that have no better lending option right now, says Raphael Amit, an entrepreneurship professor at the University of Pennsylvania's Wharton School.

Interest rates on such financing can sometimes run 15% or higher, so it's best to resort to this approach only when there's no lower-cost option.

So-called asset-based loans -- loans in which assets such as inventory, equipment or real estate are used as collateral -- can be good options for companies with lots of assets. But again, rates tend to run much higher than on traditional bank loans. The loan amounts are often capped at a percentage of the assessed value of the assets, such as 65%.

Continued: Negotiate with customers, suppliers

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