Small business has changed a lot in the past few decades, a lot of it good but some not.

However, one of the most significant positive changes to the small business landscape over the past decade has been the explosion of alternative funding options available to new and seasoned business owners.

What was once a very short list—get help from friends or family or attempt to acquire a loan from a major bank (the latter being much more difficult to do now than it was in the past)—has become a long list of diverse programs.

As a business owner, this has placed the power in your hands more than ever, not only because you have more options but because you can choose an option which best fits your needs and goals.

So, what are the best options available to you as a small business owner?

Crowdfunding and Peer-to-Peer (P2P) Lending

Crowdfunding and Peer-to-Peer (P2P) lending are both 21st Century inventions which have become incredibly popular over the past decade.

Crowdfunding sites such as Kickstarter.com offer a kind of direct consumer “investing” never seen before. If you have a great idea, whether you’re a new startup or an established business launching a new product, by creating a great presentation and executing an effective marketing plan to attract viewers to your campaign you have the ability to generate the funding you need without a middleman.

Most crowdfunding campaigns don’t reach their funding goals, however, those that do tend to fall within certain proven categories such as new inventions, games, and other media. So, do your own homework to find out if Crowdfunding would be a good option for you.

Similarly, Peer-to-Peer lending pulls from individual investors like crowdfunding, therefore removing the middleman but in a more formal way. Participants place their money with a P2P company, such as Prosper, and their money is invested for them in individuals and businesses who apply on said platform.

Pros:

  • Remove the middleman
  • More control

 

Cons:

  • Smaller funding amounts
  • More responsibility from you to successfully obtain funding (especially crowdfunding)

Unsecured Business Loans

An unsecured business loan is one of the most popular alternative lender programs available.

As opposed to a traditional bank loan, which is typically secured through some form of hard collateral such as physical property, cash, or vehicles, an unsecured business loan doesn’t require such collateral.

Instead, an unsecured business loan typically requires no collateral at all. At most, a guarantee on business sales or something similar may be required which, if the business closes down shop, you’re not responsible to pay back.

Lenders such as Excel Capital offer unsecured business loans with less-than-perfect credit. Instead, a balance of factors such as revenue, debt-to-income ratio, credit, and cash are taken into account, making an unsecured business loan the perfect vehicle for many business owners without good credit.

Pros:

  • Easy approval since a variety of factors are taken into account, not just credit
  • No collateral

Cons:

  • Interest rates tend to be higher to counterbalance the lack of collateral

Revolving Lines Of Credit

Another popular alternative lending program, a business line of credit is unique from most other lending programs in that it works much like a credit card, offering a revolving balance of credit which you have the ability to pull from whenever you need.

With a line of credit, you have the extra funding you need when your busy season hits, allowing you to offset the increase in sales before the spike with an increase in production. Similarly, you capital available within arm’s reach when a critical piece of equipment breaks down and your day-to-day sales depend on its replacement now.

Pros:

  • Can use the funds for anything

Cons:

  • Tend to be more expensive than traditional funding
  • Low funding caps (typically around $150,000)

Startup Lending

Startup lending is another increasingly popular option which is similar to an unsecured business loan.

Companies such as Upstart.com offer small loans to startups, allowing for yet another funding option outside of traditional bank lending. The major benefit, and unique quality, of startup funding is that approval isn’t based solely on your credit history but factors such as your education, graduating school, and job history as well making it easier to obtain funding.

This offers a useful contrast to unsecured business loans which offer a more well-rounded approval process but require previous business history and numbers for approval. With startup lending, a new business can obtain the funding it needs without perfect personal credit from the business owner.

Pros:

  • Approval based on education and job history in addition to credit, so great for startups without perfect credit

Cons:

  • Small loans ($50,000 maximum)

Invoice Factoring

Invoice factoring is unique to the options mentioned thus far because it’s based entirely on the size of existing business invoices you’re owed, sales volume, and your customer’s creditworthiness as opposed to your credit or a mixture of performance factors including credit.

Lenders such as Bluevine and Fundbox offer invoice factoring based on the total size of the invoices owed to your business, with Fundbox offering loans up to $100,000 and Bluevine up to $5,000,000.

Pros:

  • Not dependent upon your credit
  • Amounts up to $5,000,000

Cons:

  • Dependent upon your existent invoices

Amazon Lending

Another increasingly popular option is Amazon Lending.

Started by Amazon.com in 2012, Amazon Lending is an option only available to those who sell on Amazon’s marketplace (and only for inventory purchases).

However, for those who are lucky enough to be invited to borrow directly from the world’s largest digital retailer are treated to a streamlined and dependable source of financing to purchase Amazon inventory.

Pros:

  • Ultra convenient for those selling on the Amazon marketplace

Cons:

  • Only available to those selling on Amazon.com (invite only)
  • Limited to Amazon inventory purchases

Only you can decide which option is best for you. However, one thing is for certain: you have a greater diversity and range of options than ever before, making it easier to obtain the funding your business needs to grow.

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Chad Otar
Chad Otar is the CEO of Excel Capital Management, a Fintech company that serves as an all-around one stop shop for business owners' capital needs.

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