Beginner?s Guide to Alternative Lending
Running a small business is seldom easy, especially when a financial pothole is encountered. Potentially lacking millions, or billions, of dollars in assets to weather a major event, this could spell trouble for even established small businesses. The usual first place to seek funding is through a bank. However, banks usually have certain lending criteria for the applicant?s business longevity, creditworthiness, and the size of the loan package. If one or more of these criteria are not met, the odds of obtaining bank financing tend to dwindle. Luckily, there are some methods of alternative lending that small business owners can take advantage of. While they may not be right for everybody in every circumstance, they may help to weather an unforeseen interruption of capital flow.
One of the first methods to raise money to keep the business going is to seek out investors. In exchange for the funding capital, business owners usually provide investors with a stake within the business. Usually, the first people that an entrepreneur looks to are friends and family. After all, who better than loved ones to help a budding business owner see through the hard times to achieve the vision?
This said, entrepreneurs should heed some caution. First, intermingling family with business can prove incredibly precarious, as the familial relationship can become damaged if the business falls apart. Second, while some are lucky enough to have family with enough means to invest in the business, most are not. This is a form of alternative lending that can benefit, but can also hinder.
Another possible source of revenue is through crowdfunding. Crowdfunding is a relatively new phenomenon in which a person can have others donate to his or her cause or project, possibly in exchange for a given perk or experience, with a sufficient contribution. However, crowdfunding endeavors may not yield the results necessary to keep a cash-starved business afloat.
A relatively new development in the alternative lending scene, platform lending is a form of financing that is designed for people with less than perfect financial history. While these loans generally charge higher interest rates than traditional bank loans, they also tend to process more quickly and approve more applicants than traditional bank business loans. Platform lending agencies tend to cater to small businesses better than a traditional bank would, both in the approval process and in loan packages.
The New Wave
For small business owners who are struggling, new trends in alternative lending may prove to be what the doctor ordered. The traditional bank does not have to be the be-all and end-all for a small business.