Whether you intend to start a new business or have an established one, it’s likely you’ll need a substantial infusion of cash at some point. Funding a business’ creation is expensive, but an expansion or overhaul will also take money.
If you’re having trouble securing a loan, or are looking for a wider array of lending options, it’s worth considering alternative lending. Non-traditional methods of financing can allow you to raise substantial amounts of capital, often in distinct ways, or with different requirements, that you would need for a traditional loan. Below are three methods of alternative financing that you might want to consider.
Crowdfunding takes several forms, but generally involves soliciting small investments from a wide pool of donors. Sometimes donors receive gifts or other rewards in exchange for their investment. In other forms, like equity-based crowdfunding, donors receive an ownership stake in the business.
Crowdfunding can be an excellent way to raise money, under certain conditions. If you’re looking to draw from a very wide pool of donors, you need to have a somewhat substantial social profile prior to launching a campaign — or access to wealthy friends or other potential investors. If you’re pursuing an equity-based crowdfunding arrangement, you need to be willing to give up some element of ownership over a business.
Of course, if you meet either or both of these criteria, crowdfunding can be an affordable way to start or expand a business.
2. Business to Business Lending
Business to business borrowing is a form of alternative lending that functions similar to a bank or credit union loan, but cuts out the financial institution. Instead, various websites and other institutions will work to connect a business seeking financing with others interested in lending. Such an arrangement can potentially avoid some of the hassles involved in bank loans, but typically have fairly stringent criteria.
3. Line of Credit
A line of credit is typically utilized for smaller infusions of cash, but can also be a useful method of alternative lending for a new or established business. Lines of credit will typically have a certain limit on borrowing, and you can secure up to that amount prior to repayment. Lending is flexible, and you only repay what you borrow. While regular repayment will help build credit, interest rates can be very high, so lines of credit are typically not ideal long-term methods of financing.
Ultimately, there are a number of alternative methods of financing you can use in your business plans. Consider the three methods above to determine if one is appropriate for your business.