Why Alternative Financing is a Good Idea
Long gone are the days in which business owners have to rely on traditional banks to fund their companies. After the “Great Recession,” many lenders were afraid to issue loans at all, much less to risky startups. However, this didn’t stop savvy entrepreneurs, and alternative financing took hold.
There are several types of alternative financing from which you can choose. For example, you may go to a crowdfunding site to get financial backing from the general public. You could also turn to loan matching sites that pair individual lenders to borrowers for a lower interest rate. These are just two of the many creative financing tools available.
So why do entrepreneurs turn to these sources instead of the traditional and reliable banks? Each business owner has a different reason, but there tend to be three central themes for choosing these financing methods:
Banks Won’t Lend
Many small business owners turn to alternative financing because their original plan didn’t pan out. These days, most banks prefer to loan to businesses that have been in operation for some time and need more than $1 million.
These constraints leave many startup businesses without traditional financing options. One of the benefits of non-traditional funding is that your company does not need to borrow such a large sum or be in operation for several years.
Small, Short Loans Available
Many startup businesses need less than $25,000 to get off the ground, especially if the owner is smart with the business plan. However, many banks just don’t issue these loans at all. Alternative sources of financing give you the option to get only the small loan you need, and not a penny more.
Furthermore, banks tend to prefer long-term lending solutions. Non-traditional funding does not have such an inclination. In fact, many alternative lenders prefer short-term loans. This option is excellent for companies that only need a little boost.
If you choose the non-traditional funding route, there’s no need to sit in a stuffy bank, wait for a lengthy underwriting process, and then wait some more for a check to clear. Alternative funding solutions are just easier.
Often, you can get the funds in just a few hours. That means your business gets the capital when you need it, not when it’s too late.
Not Limited to Local
Another big reason that business owners turn to alternative financing is that they are no longer forced to go to a local bank. Instead, entrepreneurs can choose a specialized lender online that understands their unique needs.