Alternative Financing: Definitive Guide to Business Funding Options
The basics of alternative financing
Only about 80% of small business are granted funding by traditional banks. Traditional banks have been hesitant to fund small businesses since the recent financial crisis. To fill the gap, a large number of non-bank lenders have popped up to fund small businesses and entrepreneurs. These alternative lenders offer quick and easy applications, faster processing and underwriting and offer the option to apply for loans in smaller increments. In fact, often entrepreneurs will only have to wait a few minutes to find out if they are approved for the loan. On the down side, the interest rates on the loans are often higher.
Alternative financing lender options
• Crowdfunding
• Non-profit lenders
• Online business loans
• Invoice financing
• Aggregators or loan matching sites
Crowdfunding explained
Crowdfunding is a method of obtaining cash to start a business by sourcing it from a large number of people in small amounts. Sometimes these funds are from hundreds of people with as little as $5 from each person. There are two major types of crowdfunding:
• Rewards based crowdfunding: This is when each person who gives a small amount of money is rewarded for their contribution with something. Typically, the reward will be the a product or service that the small business sells.
• Equity based crowdfunding: This is when each person contributes a small amount to the business and in exchange they are entitled to small share of the profits of the business. This is similar to buying a stock in a company.
Alternative funding is a great option for many small businesses especially if a traditional bank loan has been denied to your business in the past. However, there are a lot of options to consider. It is important to work with a financing expert to help determine the best method of financing for your business.
For more information on alternative financing contact Muth Capital.
