Small business financing can be challenging to qualify for. Most banks would require an excellent credit score and a two-year experience running the business. Even if you already have these qualifications, there’s still no guarantee that you’ll get your loan application approved, mainly if you apply to a large bank.
Fortunately, there are alternative financing options that provide small business owners the means to obtain funds outside the traditional banking system. These options include crowdfunding platforms, online marketplaces, cryptocurrencies, and third-party payment providers. For most businesses, alternative financing means taking a loan from an online lender.
Alternative Business Loans You Might Want to Consider
There are multiple types of alternative business financing. Plus, there are so many different lenders you can choose from that offer these options.
5 Alternative Funding Options For Small Business
Below are the alternative business loans you can think about is financing your small business:
1. Personal Loans
If you are still new to the business and don’t have much revenue, it might be challenging to get a traditional business loan. But, lucky for you, you can use personal loans to bolster your business.
Personal loans typically provide a fixed monthly payment or installments over a loan term of two to seven years. In addition, this type of loan tends to be unsecured. This means lenders will not require you to pledge your asset as collateral to guarantee the loan.
Your personal creditworthiness and income play a huge part in determining your eligibility and landing a personal loan with the best rates and terms. So, if you have any outstanding debt or low income, it’s recommended to look for ways to improve your situation before applying to increase your chances of approval.
2. Online Loans
Many online lenders offer business financing products that are similar to those that traditional banks offer. These products include lines of credit and term loans. However, it’s vital to know that online loans and bank loans differ in some ways.
Online loans usually have less strict eligibility requirements concerning your time in business, credit score, and annual revenue. Plus, they can be easier to apply for and can fund you fast. However, in exchange for its accessibility and convenience, online loans tend to have higher interest rates than traditional banking loans.
3. Lines of Credit
You can get a line of credit from a bank or an online lender. However, it’s typically easier to get one from an online lender.
A line of credit is a type of financing that can act as a source of capital for your business. You will be granted access to a set amount of funds you can draw from any time at your convenience. Plus, you are only charged with interest on the amount you borrow.
4. Merchant Cash Advance
Merchant cash advances are not considered loans. However, they serve a similar purpose.
This type of financing is an advance on your business’s future earnings. With this option, a lender can provide you with a set amount of cash and then starts to recover the amount you sold to them in advance by holding back a set percentage against your daily credit card earnings. Of course, this means that the amount you pay every single day will also fluctuate with your sales.
Regarding merchant cash advances, there is no set deadline for repayments. The lender will keep on collecting a percentage from your daily sales until the funds you owe are fully repaid.
5. Business Credit Cards
Business credit cards are an efficient tool that can help you fund your business without taking out a loan. This type of option can be used for paying small or large purchases while earning rewards and building your business credit score.
When selecting the right business credit card, it’s vital to consider the one that offers the highest amount of cashback, especially for the types of purchases your business frequently makes.
It’s important to know that business credit cards work the same way as your personal credit cards. First, you pay your purchases using your business credit card. And then, after the end of the set billing cycle, you’ll receive a credit statement that shows the total balance you owed and the minimum amount due. If you choose to pay the bill in full every month, you won’t be charged with any interest on your purchases.
To Sum It Up
You can get financing to grow your business by taking on debt, such as a small business loan from banks or alternative lenders. However, most banks tend to have high borrower requirements for this type of loan. So, if you want a fast and easily accessible small business loan, applying to alternative business funding lenders might be the best fit.