If you’re looking to obtain funds to start or expand your business, there are a lot of ways to do that. It’s easy to talk about a business loan, but in reality, not all business owners can afford a business loan.
Business loans can be a struggle, especially if you’re starting a small business. Moreover, if your business has less than a stellar credit score or doesn’t have credit yet, it will even be more difficult to acquire one. Luckily for you, there are several options for alternative funding that are readily available in the market.
What is Alternative Funding?
Alternative funding is just a way to gain financing for your business outside of traditional bank loans to gain capital or funding. Many alternative funding sources are available online. They are a great option if you aren’t approved for a business loan or don’t want one.
These options are different from one another, which is why you need to understand them first if you want business funding that is better suited for your business needs. Here are some alternative funding options for you to consider.
Peer-to-peer lending, more commonly known as P2P lending, is an option to directly obtain a loan from an individual without having a financial institution as the middleman. There are a lot of websites that can help you find an investor online. Although this method of acquiring funds is relatively new, as it started in 2005, they are gaining popularity as an excellent alternative funding method.
P2P lending websites directly connect the borrower to an investor. They somehow work as a loan since the website sets the rate and repayment terms for the funds. And, these rates and terms directly depend on the business’s creditworthiness. So how does it work, exactly?
First, investors will open an account on the website and deposit a set amount. Then, loan applicants will post a financial profile on the site that will be categorized according to their creditworthiness. Their creditworthiness, as mentioned earlier, will determine the rates they will pay and their repayment terms.
And then, the loan applicant can apply, review, and choose from the offers provided to them. Some applicants break up their applications into smaller ones and make multiple offers.
There are a lot of P2P lending websites that specialize in a unique type of lending. For example, StreetShares specializes in giving small businesses additional funding or capital. Another good example is Patient Solutions, where doctors receive funds that they can offer to their patients.
An angel investor is a high-net-worth individual willing to finance small businesses or entrepreneurs who show promise. Of course, this isn’t free as they usually exchange their funding for some percent of the equity in the business. Like some loans are based on income, loans from angel investors are based on how you pitch your idea and the promise it brings.
One thing about angel investors is that they are hard to find. But if you have a relative or friend who has a high net worth, you can ask that person to help you fund a business. The funds offered by angel investors are usually only once to get the startup on the ground or to help it expand.