Many business owners, when seeking to raise funds, start by pursuing conventional means of securing financing — typically commercial bank term loans, or even SBA loans.
However, in some cases, this is not possible. You may have a less than ideal financial history, making banks reluctant to lend, or you may lack sufficient experience to secure a term loan. Or, for various reasons, you may prefer to secure money by a less traditional option.
In some cases, methods of alternative lending can be effective as a means to raise funds for your business, and get you the cash you need to undertake a project and thrive.
No Approval For a Bank Loan?
As mentioned above, most banks have very strict criteria for commercial loans, and may simply not lend if your credit is below a certain threshold. But even with good credit, banks tend to be skeptical of new business owners, meaning securing a loan can be tricky.
Of course, these are not the only reasons why you might choose to finance outside of a bank. Some prospective entrepreneurs may seek means of raising money from other sources for their own reasons — for instance, by borrowing from a wealthy family member.
Securing Private Investment
When accessible, securing financing outside of a commercial bank may offer unique flexibility in your loan. Terms of any loan or investment can be arranged outside of strict, pre-defined arrangements, potentially offering you more latitude in your financing structure.
Most simply, under a private loan, money is lent and repaid according to pre-defined terms. Another similar option is venture capital investment, in which a wealthy investor or group invests in your startup, typically in exchange for some sort of ownership equity in your business. While this method will entail giving up some control over your new enterprise, it will also give you more repayment flexibility.
Crowdfunding a Business
An increasingly popular form of alternative lending is crowdfunding. Many new businesses and projects are forged from widely-sourced crowdfunding campaigns, in which a large pool of donors contributes individually small sums to fund your project. If you have some public profile or significant social media presence, this can be a great way to get a new business or project off the ground.
Ultimately, there are countless forms of both conventional and alternative lending available when starting a new business. Consider your own needs and the future of your enterprise to determine what makes the most sense for you.
