Before outlining what alternative funding is, and why small businesses should consider it when looking for financing, we need to define the term itself. Alternative financing is any means by which additional funds can be obtained that would not normally be accessible to a company. In other words, alternative financing is any source of funding that is not normally available through traditional lending institutions. For example, debt is one type of non-traditional funding. Any other type of non-traditional financing is an alternative funding source.
There are many different sources of alternative funding that are commonly used by small businesses across the country. One of these sources is the purchase of an outstanding note. Many small businesses will obtain a note from a third party on their property in exchange for a lump sum payment. This is typically how companies obtain debt from investors. However, note purchasing is not the only way in which small businesses use alternative funding.
Another common source of working capital loans is through working capital loans. Working capital loans are made based upon the credit worthiness of the borrower. As previously mentioned, small businesses use working capital loans for purchasing property, equipment, and even debt consolidation. Another potential use for working capital loans is to make purchases using short-term cash. In essence, working capital loans are another form of alternative funding Alternative funding.
While many people believe that alternative business financing options are only for start up needs, this is simply not true. Just as with traditional loans, there are many alternative financing options available to businesses today. One of the most popular options is to use your home as collateral for obtaining funding. Home equity is similar to a line of credit in that it is not considered a permanent solution, but rather a temporary one. However, just like a line of credit, home equity can be very useful when obtaining necessary funding.
There are several other alternative loan solutions available to businesses. The most common involves banks offering short term business loans to help entrepreneurs obtain cash flow. In general, banks do not provide great interest rates on short-term business loans. If you are unable to obtain a traditional short term business loan, some lenders will offer short term business loans to help solve cash flow problems. However, the interest rates are often very high as these lenders are providing an alternative for borrowers. Therefore, these types of short term business loans are not really helpful for many small businesses.
The other popular source of alternative financing comes in the form of leasing. Leasing allows entrepreneurs to secure the payment terms of their loans in order to avoid paying balloon payments in the middle of the repayment period. Because there are so many other financial considerations faced by most new businesses, lease arrangements tend to be a better option for most entrepreneurs. Also, because these loans are typically less expensive to secure than other financing options, the application process can be much simpler and often less time consuming.
Small businesses that are looking for more immediate funding options may also consider taking out working capital loans from traditional lenders. Working capital loans are loans that are offered by private lenders that are based upon the credit worthiness of the business. As previously mentioned, these loans are often used for short-term purposes only; therefore, they do not usually provide a large amount of flexibility for long-term debt management. Most working capital loans are also not considered a good choice for many new businesses due to the high interest rates and strict terms.
Even though many traditional banks are reluctant to provide funding to small businesses due to the fact that most loans are secured against personal property, there are alternative lenders who specialize in providing working capital and other short term funding solutions to all types of businesses. Many of these lenders provide services via the Internet, while others may even be able to meet you in person at your place of business to discuss the options available to you. In addition to meeting in person with a lender, it is important to thoroughly research all of your funding options before deciding on one to ensure that you will be able to obtain the appropriate financing for your specific needs.