Starting a new business takes a lot of time and money, and sometimes it can be difficult to obtain a conventional business loan to get you started in your endeavor. Your credit score may be lacking, you may have other types of debt (like student debt), or you may simply have a lack of business history that makes financial institutions reluctant to lend. In such cases, that does not necessarily mean your business dreams must be dashed. Many methods of alternative lending can be excellent for entrepreneurs who cannot conventionally raise cash. Here are three types that may be worth considering.
1. Crowdfunding
Crowdfunding is an increasingly popular means of funding new business ideas. In its most popular contemporary conception, crowdfunding typically involves using the internet and social networks to raise funds from a large pool of small-dollar donors. With wide enough reach, the money can add up quickly and can be a great way to build up a sizable nest of cash to start a new business.
However, it’s important to remember that this tactic is far more likely to be successful if you already have some business reach, including a significant social media presence. There’s also a good chance that while it can help get you towards your goal, you’ll need to find some other ways to raise needed funds.
2. Private Loans
Individuals with access to a wealthy friend or relative may benefit from taking out a private loan. In its simplest form, a private loan is a money lent from one person to another based on predefined terms. A private loan has the advantage of avoiding the extensive application process necessary in a bank. Moreover, because terms are negotiated on an individual basis, there may be more flexibility in coming to a suitable arrangement.
However, a private loan can also put a strain on a relationship, and it is worth considering the interpersonal dynamics produced by such an arrangement.
3. Asset-Based Loans
An asset-based loan is a loan lent exclusively based on something you put up as collateral — property, a vehicle, equipment, or something else. While likely limited in scope, it can be a helpful way to raise additional cash as you work to fund a new business.
In short, there are a variety of alternative lending options for funding new businesses, that exist outside of conventional funding paths. The options above and others may suggest helpful ways to get started.