Every business owner has budget shortages at some point, no matter the size of his or her corporation. However, small business owners have unique problems finding funding because they frequently don’t qualify for traditional bank loans. Whether you’re just getting started and need funding for supplies and premises or you’re a seasoned entrepreneur looking to expand your company, you probably don’t fit the requirements for traditional loans. Does this mean that you can’t get funding for your projects or expenses? Of course not. You can turn to alternative lending to cover your budget deficits.
What Is Alternative Financing?
Alternative financing is any kind of funding that does not come from a traditional bank’s loan programs. Most of these sources now operate online, so you can apply for the different options from the comfort of your office or home. Before you make a decision on a funding source, understand the different forms of financing. Invoice factoring occurs when you need advances on your customers’ payments and can afford to lose a small percentage of the invoices to a factor’s fees. Reach out to another company in your industry or network for a business-to-business loan if you need a larger amount of money. Open a line of credit with a third-party company to cover short-term and unexpected expenses. Each of these forms of alternative financing has its own requirements and repayment terms, so it’s important to conduct thorough research before signing a contract.
What Are the Benefits?
Alternative financing has many benefits. Most importantly, the applications’ qualifications are generally less strict than for traditional loans. While lenders still examine your credit score and financial history, they are less likely to reject you based solely on these factors. Since they conduct business almost entirely online and have fewer proposals to review, they respond to applications much more quickly than traditional banks. Finally, most companies who participate in alternative lending do not require collateral or have flexible guidelines on what counts as collateral.
What Are the Drawbacks?
Although these forms of financing are helpful in many ways, they do have some downsides. If you want to pay off a loan or line of credit early, you do not receive the benefits that traditional banks usually provide. Additionally, interest rates tend to be higher for these funding sources, and you must watch out for extra fees that can drastically reduce the amount of money you receive.
When you don’t know how to make up for your budget shortfall, consider different alternative lending options.