Alternative financing may be the perfect solution for companies looking for additional means of securing adequate business funding. This form of financing may be used to carry a new venture through its early phases of development, restructure existing debts, or take the business to its next level. Conventional lenders such as banks and private lenders may shy away from riskier businesses and not focus on business credit. Furthermore, an established company may find itself needing additional capital, yet for various reasons is ineligible for a loan.
Alternative financing is provided through a non-conventional source. In this chapter, you’ll discover your options. Topics of discussion include factoring, commercial finance lines, advance pay programs, lease financing, purchase-order and supplier-guarantee financing, peer-to-peer business lending, strategic alliances and venture capital. The dangers of alternative loans are also discussed, as it is imperative to understand the consequences of your choices. As there are no guarantees in personal affairs, the same applies to business.
ALTERNATIVE FINANCING FROM A DIFFERENT PERSPECTIVE
When a business owner or new entrepreneur seeks financing, many decision factors remain constant across the various types of financing, including the 5 C’s of Lending. With alternative business financing the lender can be a private investor, equity firm, or angel investor. Required additional documentation on the business is inevitable. Be prepared to include a thorough business plan for newer businesses, prior tax returns, and projected financials for multiple years of operation.
A personal loan, or personally guaranteed loan, is mostly driven by the business owner’s personal credit. On the other hand, alternative business financing is valuated by the strength of the business, or business model. Many times, the creditworthiness of the business is determined by a Paydex Score through Dun & Bradstreet or similar scoring by other business credit reporting agencies. Like any other loan process, when the requirements are met to the lender’s satisfaction, the business is then funded. Instating higher interest rates justifies the alternative lender’s risk, a process important to understand about these lenders.
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