An Introduction to Alternative Financing
Alternative financing is a unique way entrepreneurs are funding their business needs. Whether you need to secure cash to begin or expand your operations, or you have hit hard times and need to keep your business afloat, this funding can help you move forward instead of being set back.
What Is This Funding?
Alternative funding is securing business loans through means other than traditional bank loans. There are many different ways to get your hands on cash for your business needs, and some of the most popular forms of alternative financing include:
- Angel investors, which are people willing to invest a percentage of their money into your business. In exchange for the cash, the angel investor will help manage your business and give you guidance in your daily operations. He or she will also expect a portion of your profits.
- Crowdfunding is when you pitch your business idea or need on a crowdfunding website, and people donate money toward your venture. This money does not need to be paid back, so if you can secure the amount you need, you’re really set.
- Merchant cash advances work much like payday loans. The lender will provide you with a lump-sum of cash that you pay back by giving the financer a percentage of your credit card sales. The amount paid back is adjusted by your busy and slow months, giving you leeway when you need it.
- Micro lenders are financers who are interested in helping businesses out by providing loans of up $25,000. These lenders work directly with the Small Business Administration, and borrowers are given up to five years in some cases to pay the money back.
Other types of non-traditional funding include borrowing from your family and friends, asset financing, business grants and incubator programs.
Why This Funding is Popular
Alternative financing is utilized by businesspersons operating small and large companies for many reasons. The primary reason is ease. Alternative funding is flexible in the amount of money lent, the payback time and terms and viability of the borrower. Those looking for a small amount of cash and/or those who have no established or poor credit can still obtain a non-traditional loan. Traditional loans are limited to large amounts and a lengthy approval process.