Traditional business loans have long been a popular option for entrepreneurs launching a business or improving cash flow. However, they often involve lengthy processes and rigid qualifications. Thankfully, a variety of alternative funding solutions now exist—offering faster, more flexible options for business owners. Here are a few to consider.
Peer-to-Peer (P2P) Lending
P2P lending allows individuals to obtain loans from individuals without going through a bank or financial institution. Because of this, it’s also known as crowd lending or social lending since it’s about people lending each other money.
The process typically begins when an investor signs up on the platform and deposits funds to support loans. At the same time, borrowers create a financial profile and are assigned a risk category by the site. Based on this information, they receive offers from various investors. After choosing an offer, both sides agree on repayment terms. The borrower then receives the funds and repays the loan according to the established schedule.
Leaseback (Sale and Leaseback)
A leaseback is a method in which a company that sells an asset, like property or equipment, can lease back the same thing from the buyer. A leaseback, or sales-leaseback, involves finalizing the lease terms, including payment and duration, after the asset is sold. In this arrangement, the seller becomes the lessee, while the buyer of the asset takes on the role of the lessor.
The most common users of these arrangements are companies with high-value assets like property, land, or large and expensive equipment. As such, they are also popular with people who own expensive assets and want to start a company. They can use this arrangement to acquire financing while still having access to their assets.
Personal Loans
A personal loan is an installment loan issued by a lender or a bank, but most commonly by online lenders. To get one, the borrower must meet the lender’s requirements. They can use it if approved for almost anything, like home renovations, big purchases, and even vacation financing. Of course, personal loans can also be used for business purposes, specifically, to boost cash flow or purchase equipment.
For people who can’t get a loan anywhere, personal loans, especially from online lenders, can offer a more accessible and flexible alternative. They’re very fast and convenient, too, as you usually only need a copy of your identity and proof of income. Once you sort out your application, it can be processed and approved within two days.
Invoice Financing
Invoice financing allows businesses to borrow money against the amount due from their customers. It helps businesses improve their cash flow, pay their employees and suppliers, or stay afloat. So, how does it work?
In summary, as mentioned earlier, invoice financing is a form of short-term borrowing that a lender extends to its business customers based on their unpaid invoices. The company sells its accounts receivable to improve its working capital through invoice factoring, especially if the business is in a tight situation. Once these invoices are paid, the business will repay the financing it received from the lender with added costs.
Crowdfunding
Crowdfunding is a method of acquiring small amounts of money from many people. It’s usually done online through crowdfunding websites like Kickstarter or Patreon. Typically, it’s used by creators to fund their projects or individuals looking for donations for charity causes and the like. However, it can also be done to raise capital, especially if done correctly.
So how does it work? Typically, you must find a good crowdfunding website and create an account there. Once done, you can then create a pitch where you will present your business, how it works, etc. You can also make your pitch engaging to entice more people to help you financially. Once done, and if you’re fortunate, people will start donating to your capital.
Alternative Solutions are Key
While traditional loans are still a common route for securing business funding, they are not always the most practical solution. As a business owner, you must know the alternatives for business funding and which is best for your business. By exploring these options, your business can find a solution that aligns more closely with your plans.
