Photo by Alexander Mils
Are you having trouble getting financing for your business through your bank or credit union? If so, don’t give up; you still have options.
If you can’t get a traditional loan through your financial institution, you should consider alternative financing. Alternative financing is usually easier to obtain than traditional loans and can easily be applied for online in a few minutes. To see what alternative financing options you have, keep reading below.
First Things First: What Is Alternative Financing?
Alternative financing can be defined as the means of obtaining capital outside of the traditional banking system. Most of these alternative options are available online and the applicant will never need to step foot inside of a bank to obtain these financing means.
Alternative financing can be obtained through places such as crowdfunding platforms, online loan marketplaces, third-party payment providers such as PayPal, and cryptocurrencies. Usually, when it comes to alternative financing for your business, it means that you will be applying online for a loan of some sort.
As for the reasons you may choose alternative financing over traditional financing, it’s that it can be easier to maintain than a traditional loan at a bank and it can be faster and more convenient. There are a few options when it comes to alternative financing, and below we have outlined a few to help you find the best option for you and your business.
1. Short-Term Loans.
Short-term loans are a great alternative way to finance your business and the best part is it can all be done online. This loan is a type of term loan that has a shorter repayment time than traditional loans that’s usually within a year or just a few months.
Short-term loans also offer other benefits, such as a factor rate fee structure instead of a traditional interest rate. The lender will care less about your credit score when applying and more about your business’s revenue, which makes getting a short-term loan a breeze.
Another upside to short-term loans is that they are usually processed in just a few business days, which is great for when you need a loan fast. Just beware when applying for short-term loans online. Do some research and make sure the site you’re applying through is legit.
2. Project Financing.
If you’re looking to fund a non-traditional project or a complex one, then getting funds through project finance is the best decision for you and your business. Project financing is a long-term loan that will give you the funds to complete a project in any stage of the development process.
3. Merchant Cash Advances.
Merchant cash advances are similar to short-term loans in the sense that they are easy to obtain, can have a factor rate interest fee, and can be more expensive than a loan you can get through your bank or credit union.
When looking at a merchant cash advance, it’s important to point out that it isn’t a loan. In fact, a merchant cash advance is an advance on your future earnings.
The lender you choose will front you a sum of money that you both agree upon. Then, they will start recouping the advance with interest.
The collection will be in line with your daily sales, meaning they will take a percentage of them until the advance is paid back in full. Merchant cash advances should only be considered if you can’t get any other funding for your business.
4. Business Credit Cards.
If you’re looking for a useful way to pay your business expenses without taking out a loan, then getting a business credit card is the right route to go. These credit cards can be used to pay items that have a large price tag or even ones that have a smaller bill.
The best part is that as you put bills on your credit card, you will also be earning points or credit through your credit card institution to help with future bills. When selecting your business credit card, make sure to get the one that will give you the most cash back on the items you will be buying the most.
When a loan is less than $35,000, it’s considered a microloan. They have a low interest rate and are usually given to newer businesses and start-ups that need working capital. They are ideal for groups that are under-represented such as veterans, women and minority-owned businesses, and those with bad credit.
To get a microloan, you will have to venture online. Usually, banks are not interested in lending out these small loans. So if you’re looking to get a loan face-to-face, you’re out of luck here.
6. Lines of Credit Through Online Lenders.
A line of credit is a lending option that can be obtained from an online lender or a traditional bank. When it comes to loans for your business, usually, lines of credit are easier to obtain online than a regular bank.
A line of credit is a safety net in a way. It’s a source of working capital for businesses, which means you are granted a specific amount of money that you can withdraw at any time. A line of credit can be compared to a credit card, but you are only charged interest on the amount you take out.
Getting an online line of credit for your business is a great alternative financing choice because it won’t require you to have a specific amount of money to open it. It will help you get the money you need in tight times, such as paying payroll.
7. Online Crowdfunding.
If you’re looking to raise money from affiliates and peers and not take out a loan, then you should consider crowdfunding. When it comes to crowdfunding, there are 4 different types. They are debt, equity, rewards, and charity.
When using rewards crowdfunding, you will not be required to pay the money back, but you will have to give those who donate something in return. Equity-based crowdfunding is when someone invests in your business in exchange for products or a share.
For some businesses and start-ups, crowdfunding is the only option for them to receive funds. There are multiple crowdfunding sites online. All you have to do is set up an account and then distribute your link to those who are interested in helping you out.
8. Small Business Administration Loans.
The United States backed organization known as the Small Business Administration (SBA) has loans that are a great alternative to traditional bank loans. SBA loans can be given through online lenders and provide you with the safeguard of knowing that if you default on the loan, the SBA will repay a portion of the debt left behind.
SBA loans usually come at a lower interest rate since there is less risk for the bank or lender. The SBA offers a few different loan programs, so you should look to see which one fits you and your business the best.
9. Online Loans.
When it comes to obtaining loans online, you will find a multitude of online lenders that are offering financing products very similar to a traditional bank’s term loans and lines of credit. The way that online loans differ from ones you can get down the street is that they come with less strict requirements, so it’s easy for almost any business owner to obtain them.
Online loans are also easier to apply for than the latter and are usually funded in record time. The only downside to these loans is that they will have a higher interest rate than the ones you can obtain through your credit union or local bank.
We suggest getting an online loan if you’ve been declined for a loan at your bank or credit union. Since these loans have a bit more leeway in the requirements, you’re bound to be approved in no time.
10. Invoice Factoring.
Invoice factoring is financing that will free up cash from outstanding invoices. You will go through an invoice factoring company that will buy all your unpaid invoices for a percentage of what they are actually worth.
Then, the company will collect payments from the customers that have outstanding invoices. Once they’ve received the money, they will send you the remaining amount of the invoice and keep a small service fee.
If your business has a number of unpaid invoices that lead to cash flow issues, then this is the best decision for you. You will get your cash one way or another and bad credit isn’t an issue for the factoring companies.
11. Term Loans.
A term loan is also known as an installment loan. This financing option is a traditional form of business financing that is usually obtained from a local bank or credit union. The designation of term loan means that over a set amount of time, the loan is repaid with your choice of a fixed or variable interest rate.
The structure of term loans is very similar to that of traditional loans. The only difference is that there are many choices online for term loans. Term loans can be applied for directly online through your selected lender’s marketplace or even over a crowdfunding platform.
Usually, these modern term loans are more customizable and user-friendly when compared to traditional loans from banks. These loans have flexibility and transparency built in, which allows you to receive funds and send payments online without any confusion or hassles.
12. Invoice Financing.
You may be thinking that invoice financing sounds pretty similar to invoice factoring. The truth is that they are two different things.
When it comes to invoicing financing, the company you choose will give you a line of credit, using your unpaid invoices as collateral. The amount of the line of credit will depend upon your outstanding invoices. Unline invoice factoring, the company will not buy your invoices, so it’s on you to call and collect from your customers.
If your business has a decent amount of unpaid invoices but doesn’t need cash right away, this is the perfect option. It has lower fees than invoice factoring, which means more money in your pocket.
13. Business Grants.
Even though grants are the most difficult type of financing on our list to get, they are worth it if you think you’re eligible. Before going to take out a loan, look to see what grants are up for grabs and what their requirements are.
You have nothing to lose by applying and seeing if you can get some free money. Most business grants are funded by the government and even some privately held businesses will offer them.
The best part about grants is that you will not be required to pay them back and there will be no interest involved. When it comes to needing money without interest or fees, grants are the best way to do so.
14. Now You Know What Alternative Financing Options You Have for Your Business.
Figuring out the best way to finance your business can be a hassle, especially if you’ve been declined for a traditional loan through your bank or credit union. We’re here to help you get over this rough patch by listing out the top 13 alternative financing options you have for you and your business.
From financing that uses unpaid invoices to ones that don’t care about your credit score, you’re bound to find the best financing to get your business up and running.
For more information and tips on business start-ups, be sure to check out the rest of our website.