Small Business Are Turning to Alternative Financing
Small businesses are turning to alternative methods of financing for numerous reasons. The primary reason is big banks. They are no longer interested in taking risks, especially after The Great Recession. Burned by their own devices, banks only want to give large loan to corporate conglomerates, which doesn’t do smaller entities any good. Thankfully, alternative financing can save the day.
What is alternative funding?
Simply put, alternative funding is a way to secure the cash you need without going through a traditional financing method. Examples of alternative resources include angel investors, crowdfunding, merchant cash advances, and purchase order financing. For example, you may have a wealthy person willing to invest in your business for piece of the piece of the pie. This is angel investing. You may need to secure a cash advance against your future merchant sales or sell future purchase orders for financing. You can also raise money for your financial needs through crowdfunding.
Many small businesses seek alternative financing for numerous reasons. Imagine you run a business in North Dakota (or maybe you really do). You have a horrible winter storm that closes you operation for a week. Even though you prepared for the onslaught, your city shut down essentially, and you could not keep your doors open. This cut significantly into your profit margin and you will not be able to make your bills or payroll without help. Your bank said no to a loan, even though you are good standing with it. Enter alternate financing to get you over this unexpected hump.
Imagine this instead. You’re on your way to your store and you see the perfect commercial space to open a second location. It’s for sale and it is ideal. You contact the real estate agent when you get into work and she gives you the price. It’s affordable, too, and she tells you the building has just been renovated. You schedule an appointment that afternoon and go look at it. Once you see the place, you have to have it. You contact your accountant and while he agrees that it’s time to expand, you don’t have the cash flow for the purchase. Once again, enter alternate funding.
These are just two scenarios where alternative financing comes to small businesses rescue. You may also use it to secure equipment you need or buy out your partner. Perhaps you want to stock up on merchandise for the holiday season. Whatever your reason, knowing your alternate funding options and how they work for you is a valuable tool to your small business growth and success.