Nearly everyone has been in a spot of anxiety while waiting for a reply on a loan request. Now, a new era of lending has arisen as all types of financial institutions look to provide alternative lending to small business owners. When should you try for an alternative loan type? Here are some forms of borrowing you may need to consider, along with the pros and cons of each.
Online Loans
The whole world has moved online. The days of waiting nervously in a bank for loan approval are gradually being supplanted by the ability to ask for financing virtually. Suppose traditional banks have rejected you because of not having enough time in business or too low of annual revenue. In that case, an online lender may be able to get you the money you need quickly.
Remember that convenience almost always comes at a cost. You will likely pay higher interest rates for borrowing this way.
Microloans
If you have low overhead and just need a slight boost to gain some working capital, microloans may be right for you. Lenders who focus on microloans are often willing to assume the risk because they tend to target disadvantaged and underserved groups like businesses operated by BIPOCs or women. Some are even not-for-profit, which may inspire confidence in their genuine support.
Microloans are defined as totaling less than $35,000. Be sure to research the particular lenders you consider in this space to be sure they are reliable and stable.
Crowdfunding
If you provide a product or service that is exciting and innovative, crowdfunding could open up explosive support with the added benefit of marketing your brand. You have a major plus in that you may not be technically borrowing money but providing some benefit in return for a monetary advance.
You will compensate backers with rewards, charity, equity, or debt. Crowdfunding platforms will charge a fee, so you need to factor in that cost. You also must be 100% confident in your ability to provide your chosen compensation in a timely manner to satisfy backers. Failure to do so can result in penalties or restrictions from the platform. Worse than that, it will tarnish the name of your brand among your best prospects.
These are just a few examples. A line of credit, business grants, and short-term loans are other solutions in the alternative lending space. The struggle is real when trying to get the necessary funding to launch and run a small business. If getting traditional loans are exceedingly tricky, alternative lending can provide a practical solution.