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When Bank Loans Aren’t an Option, Consider Alternative Funding

Small business owners face many financial difficulties when funding their business. Oftentimes, newly-established business owners lack the necessary credit or simply have not been in operation long enough to qualify for a conventional bank loan. Commercial lending is very much directed at big businesses that are more financially stable. Currently, financial institutions are still tightening their lending practices. As a result, many business owners are turning to alternative funding sources. Alternative funding refers to any type of non-traditional loan or cash advance. There are various different programs available for businesses that struggle to obtain a bank loan, all of which are likely better than resorting to a high-interest credit card or a local loan shark. These alternative sources can act as a lifeline for small businesses everywhere.

One alternative source of funding is microlenders. Microlenders supply small loans, usually under $25,000, to help small businesses with their business expenses. These programs typically require that the borrowers go through a training or education program in order to receive the loan. Many of these lenders are non-profits, relying instead on donations from charitable organizations to provide the loans and training for the business owner.

Another source of funding for business owners is peer-to-peer networks. With this method of financing, the borrower will list the amount to be borrowed, give details about the business, and explain why the loan is necessary. Individual lenders then review this information until one decides to offer funding. The perks of using peer-to-peer networks are fast delivery and competitive rates. These networks make borrowing money easy for small businesses.

Merchant cash advances, also known as factoring, offer a different type of financing. In this method, a company will pay a small business a lump sum. In return, the small business repays the debt by routing a percentage of their future credit-card sales to the cash-advance company. The advantages of this method include minimal paperwork and collateral, no need to obtain investors, and no sacrificed equity. Also, if the small business is unable to pay back the cash, then the advance company absorbs the default.

For small businesses that need larger loans, there is always the option of using credit unions and private lenders. Credit unions have less strict lending practices than banks. Although they are limited in the amount they are legally allowed to loan out, these amounts are often higher than other sources of alternative funding. Even with bad credit, private lenders will usually help fund small businesses that have a steady cash flow.

Funding a business is not always easy. But even if bank loans are not a viable option, it is still possible to find funding elsewhere. Alternative funding is an essential tool for business owners who are in need of cash quickly.