Alternative financing may be your company’s best option when stop-gap infusions of cash are required. Unlike traditional bank loans - which can sometimes be challenging to qualify for - alternative funding sources like microloans, peer-to-peer financing, and merchant cash advances are relatively easy to come by.
Why Alternative Financing?
The business lending space has evolved. Whereas most financing took the form of bank loans or lines of credit at one time, alternative funding options now stem from channels developed outside conventional financial institutions.
Traditional banks still have their place, and they’re often the best route for established businesses in need of large sums of money to support long-term growth. But other sources of capital are plentiful in today’s marketplace, and may represent the better choice if:
- your business needs short-term assistance or a small sum of money (less than $250,000),
- you’ve only been in business for a couple of years, or
- your credit score is working against you
Not only do many alternative lenders have less stringent credit standards than banks and credit unions, but they can also provide much faster access to capital. And while interest rates are sometimes higher with short-term financing, it often comes with more flexible terms and approval criteria.
Unfettered by credit score restrictions that limit most traditional banks, private lenders tend to be more interested in factors like:
- the type of industry your business is in,
- the health of your cash flow, and
- your overall business performance
In other words, alternative funding approval is often less about your financial history and more about your company’s financial potential.
Stop-Gap Solutions That Could Make Sense for Your Business
Whether you’re looking to expand your venture or ride out a temporary cash flow shortfall, alternative financing options range from crowdfunding to angel investors.
The simplest solutions are often the smartest however, and any one of the following may be all your business needs to stay afloat during an economic rough patch, or raise funds for:
- new equipment or inventory,
- researching and launching a new product or service, or
- hiring additional personnel
Let’s take a brief look at a few of the non-traditional ways your business can avoid financial mishap and get the funding it needs.
Geared toward the newer business, microloans are short-term loans of small sum amounts – typically anywhere up to $50,000. Many microloans are made available by community-based or non-profit organizations to encourage entrepreneurship. Microloan programs can be local or national, and many offer management and technical assistance to business owners as well.
Online Loans and Lines of Credit
Online funding is everywhere. And companies like Credibility Capital and Kabbage are perfect examples of how you can benefit from loans and lines of credit that are quick and easy to access. If you’ve been in business for at least one year and are looking for a bank loan alternative, online business loans are well worth exploring. Online lines of credit, meanwhile, offer superior flexibility and may be the best solution for short-term expenses.
Crowdfunding and Peer-to-Peer Financing
Crowdfunding and peer-to-peer lenders are a modern and lucrative source of financing you shouldn’t overlook. Crowdfunding essentially raises capital online through the collective contributions of a large number of individual investors. Peer-to-peer (P2P) financing takes this concept one step further by making it possible to post your company’s funding requirement on a designated site where lenders can bid on your loan.
Merchant Cash Advances
If you’re experiencing serious cash flow issues, a merchant cash advance could be the answer. There are lenders who will advance your business funds in exchange for a portion of the future income generated by your credit card sales. Merchant cash advances can be expensive, so they’re best viewed as a last resort for keeping your business in business.
Not every alternative financing option will be right for every business. At the same time, several funding approaches can work better than one depending on your situation. Interest rates are always important. But other factors are just as critical when weighing your financing options. Loan terms, repayment time frames, and any rules about how business funds can and cannot be used must all be considered.
Every form of financing – whether traditional or alternative - comes with its inherent risks. You should take pains to balance these carefully against the benefits you’re hoping to gain. Ultimately, keeping your financial books in order, doing your due diligence, and preparing in advance for the loan application process will help get you the funding you need.
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