As the economy continues on its downturn, many small businesses are turning to alternative financing sources. Unfortunately, while the federal government was willing to provide some much needed funding in the form of The American Recovery and Reinvestment Act, there have been many disappointments along the way. Thankfully, however, we are here to make things easy for you. In this series, we are going to look closely at what alternative financing is, before detailing exactly what alternative financing is, and explaining how it impacts small business. Alternative financing is the money a small business may access to help it stay afloat during tough times.
There are a number of different forms of alternative funding that can be utilized by businesses. One of the most common is working capital loans. Working capital loans allow businesses to obtain money quickly in order to get things back on track. In essence, they are used as an emergency finance facility. However, conventional bank loans are not your only option when it comes to working capital financing Alternative funding.
In addition to conventional bank loans, there are a variety of unsecured lenders who are willing to issue alternative financing. The primary difference between these lenders and traditional bank loans is that they do not require a credit score or good financial history in order to receive funds. This makes them ideal for small businesses that do not have strong credit histories and are just starting out. These lenders will also work with you in order to develop a viable business plan that outlines how they plan to utilize the funds received from the alternative funding.
While working capital loans are a great option for many small businesses, it is not uncommon for them to carry very high interest rates. While it may seem more practical to raise the money you need through higher interest rates, in the long run you may end up paying more in the form of interest. By putting off your cash needs until a later date, you may be putting your business at risk. If you can only afford to keep the interest rates low for a year or two, at least by then the funds you need will no longer be affordable. At the end of the year, when the cash flow has depleted and your debt has increased, it could be too late to save your business. Therefore, it is important to choose working capital loan options that offer competitive interest rates.
One of the most common types of alternative funding sources available to entrepreneurs is venture capitalization. In this funding method, businesses receive money based on the equity they have invested in the company. Venture capital investment can take many forms, such as angel investment, business financing, commercial real estate loans, partnership funding, and private placement. Depending on the type of industry you are in, there may be more than one type of venture capital investment.
Small business loans offer some of the most flexible forms of alternative financing available today. These loans usually have shorter repayment terms and much more flexible repayment plans, so that businesses can access these financing opportunities when they are in need. Small business loans also have a much lower interest rate than other traditional loans, which makes them a great option for today’s struggling small businesses.
Business cash advances are another great source of working capital. Cash advances are based on credit card transactions made during the loan process. Businesses can access fast cash by simply applying for an advance on their credit cards. This method of taking short-term funding does not require collateral and allows borrowers to access money within just a few days. The ease and convenience of this financing option attract many borrowers.
The most difficult hurdle in most businesses’ road to growth is obtaining a reliable lender. Lenders who specialize in small business financing are in great demand. To ensure you find the right lender for your business needs, do your research online and get quotes from multiple lenders. By comparing the costs and terms of these lenders you can easily choose a lender that offers the best financing solution to meet your business financing needs.