Understanding Alternative Financing
There is no question that if you are seeking to understand alternative financing then you are opening up a can of worms. First things first, of course. A handy definition of this term is in order. Alternative financing simply means funding through non-traditional means other than a bank. With that in mind, here are some examples:
This method of alternative financing simply means that you are appealing to a large number of people to raise your funds. There are four different types of crowdfunding, including donation-based, rewards-based, investment-based, and loan-based. Crowdfunding usually takes place on a platform and it will often appeal to non-profits, charities, creative professionals, startups, and small businesses. Advantages of crowdfunding include speed, low risk, and the ability to appeal to a global audience. Disadvantages can include less due diligence.
Peer-to-Peer lending is defined as borrowers that can take loans from individual investors at an agreed-upon interest rate. A peer-to-peer lending service will essentially cut out the middleman, and it can be defined as a type of debt-faced crowdfunding. If you want to take out a peer-to-peer loan, usually all you have to do is simply fill out an online application on your platform of choice. Finally, if you live in the states of Iowa, Maine, Virginia, or North Dakota, you will need to research your state laws before considering this type of financing.
Small Business Line of Credit
A Small Business Line of Credit is another non-traditional type of financing but with a traditional flavor. This is because this arrangement is usually with a bank or a credit union and involves a maximum loan balance that the borrower can have access to and utilize at any time. There is usually an interest rate and a minimum required payment each month.
Merchant Cash Advance
A Merchant Cash Advance is a loan provided to a small business in exchange for a percentage of the future credit card sales of the borrowers. Because they are technically not loans, these often come with a higher interest rate.
Finally, there is invoice factoring. This usually involves a business selling their invoices to a third party at a discounted rate. This can be useful to a business with slow-paying clients.
As you can see, if you are running a small business, there are plenty of ways that you can alternative financing to help you with your business expenses!