Thursday, 30 November, 2023

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Alternative Small and New Business Loans

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How Small and Startup Businesses Get Funded Today

All businesses require funding; however, obtaining a loan from a bank or other typical finance company presents a challenge for new enterprises or those that have just never established their own credit history. While the Small Business Administration says that 73 percent of small businesses have obtained financing within the last year, nearly two-thirds of startup companies relied upon the owner’s own personal savings, other assets, or personal debt.

Why Seek Alternative Loans for New or Small Businesses?

In contrast, only about 10 percent of new businesses rely upon business credit cards or business loans. Because banks take a along to approve loans and have been stingy with approvals for startups or companies without good, established credit, the owners may have either been declined or not even bothered to purse traditional business financing.

However, using a business owner’s own savings account, home equity, or credit rating carries risks that aren’t always necessary. This makes it prudent to consider some alternative startup and small business loans.

Alternative Small and Startup Business Loans to Consider

Online lenders; A number of online lending companies have established themselves over the fast few years. These companies use financial tec, or fintech, to gather data about businesses online. This information may come from online sales venues, payment processors, and even social networking websites.

Because online loan companies can use this alternative information to qualify applicants, they may be able to approve loans that banks could not. This is a good comparison of online lenders vs. banks for business loans.

Advantages of online lenders: Good online lenders are transparent about fees and payment schedules. They may offer instant, online approvals and rapid funding within hours to days. Depending upon the applicant, loans from as little as $2,000 to as much as $100,000 could be available, and some of these are available as lines of credit.

Disadvantages of online lenders; Loans greater than $100K generally aren’t available. Fees may be higher than the APR from a traditional bank. Typically, loans have to get paid back pretty quickly.

Crowdfunding for business: Peer-to-peer business loans allow companies to raise money from a number of independent investors. Typically, each investor contributes a small amount to the overall funding goal, and some crowdfunding sites will return the money to investors if the goal isn’t met. Also, the crowdfunding site may draw some of its own traffic.

Advantages of crowdfunding business funds: Establishing a crowdfunding on a popular venue may help increase exposure for a new business. Companies don’t have to pay any upfront fees, but they usually offer something in return for the funds to their backers.

Crowdfunding can help businesses raise some funds and raise awareness of their products or services. There are other kinds of crowdfunding for business, but this is a summary of donation crowdfunding for business.

Disadvantages of crowdfunding for business: Typically, crowdfunding is better for raising modest amounts of money. There is no guarantee that a request will get funded or how fast it will get funded. It’s not confidential at all.

Business credit cards; Business owners may need to establish credit in their company’s name, and a business credit card might be a good place to begin. Some cards offer zero-percent introductory offers, travel points, partner discounts, and plenty of other perks. Business cards also offer the same convenience when paying for purchases that personal cards do.

Advantages of business credit cards: Business owners that need to pay for purchases online or over the phone will probably enjoy the convenience of having a company credit card. At the same time, the card can help the company build better credit. Some businesses can really benefit from perks like travel rewards or purchase discounts. Business owners with good credit may benefit from swapping out low intro rate business cards.

Disadvantage of business credit cards; The top cards with the best perks and interest rates require established credit. Also, many attractive business cards also come with high yearly fees, so a business owner has to decide if the perks are really worth it. Cash advances are usually limited and expensive, so business cards are really only useful for making purchases.

Venture capital: Business founders find investors who are willing to help fund the company for some stake. It’s called venture capital because the investor takes a substantial risk with a new or expanding company.

Advantages of venture capital: This isn’t really a loan. It’s an exchange of some share in the company for the financing that may help manage working capital, contribute to growth, or help the business in some other way. The owner can risk other people’s money in a new venture.

Disadvantages of raising venture capital: First, it’s not easy or even always possible to find investors who will take a risk on an unproven venture. Second, unlike business loans or other methods of financing, the founder has to give up some percentage of the company.

Factoring:¬† Various kinds of factoring may provide an alternative funding option for businesses who can’t or don’t care to take on more debt. This is because factoring represents a sale and not a loan. For example, B2B and B2G companies might explore AR factoring, which represents the sale of invoices. B2C companies generally rely on MCA or ACH factoring, which represent the sale of credit card or bank account receipts.

Advantages of factoring: Factoring can offer a good chance for businesses to get advance funds when they don’t qualify for credit or don’t with to take on additional credit. For modest advances, factoring decisions may come very quickly, and it can take more time to get approved for a traditional loan too.

Disadvantages of factoring: As loans charge interest, factoring comes with fees. Sometimes, repayment terms are not so flexible, and fees may cut into profits.

Which Method of Alternative Startup or Small Business Funding is Best?

What are the best alternative loans for small business? Using a founder’s own personal assets to fund a company negates a lot of advantages and protections of forming a company in the first place. Still, it allow the owner to retain control. Certainly, companies need to develop a business credit management and credit payoff strategy before taking on any debt.

In order to better manage working capital, buy inventory, take advantage of a chance to grow, an online loan may provide a good alternative loan source. Business credit cards can be convenient, and some come with nice perks. Owners who don’t mind sharing off stakes in the company and can attract venture capital may choose to take that course. In other words, there is no perfect source of small business capital, but business owners should know that they have options!

What works? The Frugal Pig invites feedback on alternative small business loan sources that have worked!

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