An alternative business loan is a loan that is acquired through means that differ from the usual method of getting a loan. Small business owners usually opt for this type of loan because they have limited sources of collateral or because their business is at risk; therefore it is harder for them to get a loan.
One kind of alternative business loan is a start-up business loan, which is very similar to a personal loan. Because start-up businesses have a tendency to fail in a short amount of time, lending institutions do not want to put their own money at a higher risk. Once a business owner has been denied by the conventional resources for a start-up loan, the individual usually looks to other sources such as family, friends, and organizations that are more willing to take a risk on start-up companies.
One organization that can help is the Small Business Administration. They work to enhance economic growth by aiding small businesses. However, because such organizations are willing to take a greater risk with start-up businesses, their interest rates may be higher, and they may require equity from your business to maintain financial support.
Another type of alternative business loan is a cash advance. Agencies that offer cash advances usually do so against an individual’s merchant account for a specified amount per location. To be eligible for an advance, a business must accept and be processing credit cards at its locations. The funds from this type of alternative business loan are usually available within a few days.
Alternative business funding resources generally refer to the different sources available to businesses that cannot obtain traditional funding. Traditional lenders, such as banks, deny many businesses that need start-up capital or that have an unstable financial history. However, a variety of agencies are available to assist such businesses in need of funding.
Factoring is common among alternative business funding resources. When a business chooses factoring as a funding method, it sells its account receivables at a discount to another company, called a factor. To be able to factor, a business must accept and process credit card purchases. A factor might also require a business to have been processing credit cards for a specified length of time, usually two or three months. The factor then collects the payments of the credit orders for a specified amount of time. The higher a business’s credit card flow, the better factoring plan the business can obtain.
Alternative business funding resources also include angel capital, also known as an angel investor. An angel investor is a private group or individual who provides funding for a business in exchange for a portion of that business’s profits. The majority of investors tend to organize a network or group to combine their capital. This reduces the risk of loss investors might face if they invested in a business alone. However, angel investors still face a high risk; therefore, they often require a large return. The return can range from ten to twenty percent of the amount invested.
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