Why are entrepreneurs using alternative financing? The reasons are plenty, as well as good, and it’s easy to see why this type of funding has gained some serious steam over the last several years. If you are in need of some cash to keep your business venture afloat, alternative financing might be your best option. Consider the below so you can make a viable decision for your financing needs.
1.) If You Have No (or Low) Credit
Whether you are just starting out or your business has had a rough year, your credit score is one of the first things the bank will look at prior to approving your loan application. Most start-ups and young companies do not have the credit the bank is looking for, nor could they; they’ve just begun. So, you find yourself in need of cash to help your business grow, yet your business hasn’t grown enough to establish your credit. This oxymoron is one reason why entrepreneurs seek alternative financing instead. The lenders are more open to discussing your needs rather than looking at your numbers.
2.) If You Lack Collateral
Alongside the inability to have established credit, many entrepreneurs who are just starting out haven’t built up the collateral a financial institution desires to back up a loan either. You might have equipment and supplies, but chances are you are leasing or paying it all off, so what you actually own is not enough to support the amount of money you’re requesting should you default on your loan payments.
3.) If You Don’t Need a Big Loan
A traditional bank business loan is generally $200,000 or above, and you probably don’t need that much cash. If you are looking for financing to help expand your business or get you through a dry spell, it might be tempting to take out a large sum, but remember, you also have to book it on your financials and pay it off with interest. It just doesn’t make sense to borrow more than you need, and chances are you don’t need $200,000.
4.) If You Want a Short Payback Schedule
Banks draw loan payment schedules out over time so they can collect more interest; business owners want to pay off loans to get them off the books. Alternative financing allows for quick paybacks, which gets you back in the black and moving forward without that pesky monthly payment.
Don’t be fooled. Small business and start-up entrepreneurs are not the only ones who take advantage of alternative financing. This new craze has hit big business big time, with corporations grabbing fast cash to meet temporary financial needs.