The question of whether alternative financing is right for your business depends on your own financial situation and how much money you need; for the most part, it can be right for any business. The reason the word “alternative” is used is because this type of funding is not a traditional bank loan. Rather, it presents unique ways to secure cash.
Types of Funding
To better understand whether alternative financing is right for your business, it helps to know some types of this unique funding, which include:
- Angel Investing: This is where a pool of people invest their own money into your business in exchange for a percentage of ownership or management stake.
- Crowdfunding: Primarily done online, crowdfunding is where people donate money to your business after you’ve placed on appeal on a website and explained the reasons for your needs.
- Merchant Cash Advance: This funding provides you cash based upon your future debit and credit card sales, wherein the loan is paid back automatically from a percentage of these transactions.
- Micro Lending: These loans are issued from smaller lenders and generally do not exceed $25,000.
These are some of the alternative financing options available to business owners, and they come with another unique characteristic: Just about anyone can get one.
No Credit, No Problem
As you probably already know, getting a loan from a traditional bank requires a lot hoop-jumping. You must submit an application and support it with your company and personal financials. You must also prove you are credit worthy. Finally, you must have collateral that will back up the loan in the even you default.
This is a tall order for most businesses, especially start-ups and smaller ones. The alternative lender will look at your loan request regardless of your business and personal financial situation. The financer might also be willing to lend you the funds if you don’t have perfect credit. The lender is looking at you and why you need the money, and he or she is willing to discuss your request no matter your current situation.
In some cases, you might be able to secure funds without the need to pay them back, such as crowdfunding. This makes alternative financing even more desirable to entrepreneurs who need cash but might not have the collateral or profits to back or payback the loan. When you take all of this into account, you can see that this type of funding just might be right for your business.