Alternative financing includes avenues of financing businesses outside traditional finance systems, such as capital markets and regulated banks. Alternative financing sources such as crowdfunding, leasing, financing, forfeiting, angel investors, and others come into the picture when a company or individual cannot borrow money from the bank for various reasons.
Today, we’re going to look at some alternative financing options.
Vendor Financing
Vendor financing is the lending of money by a vendor to a customer who uses that capital to purchase that specific vendor’s product or service offerings. For example, if you are an HVAC repair business that wants to grow or needs help with start-up costs and prefers to use a specific equipment brand, you could ask that equipment vendor for vendor financing.
Often referred to as “trade credit,” this financing usually takes the form of deferred loans from the vendor. It could also include a transfer of stock shares from the borrowing company to the vendor. Such loans can carry higher interest rates than traditional bank loans. You may consider asking for 30-90 day terms from these suppliers.
Vendor financing helps business owners purchase essential goods or services without requiring those owners to secure conventional bank loans or pledge their assets as collateral.
Crowdfunding
Crowdfunding is funding a project by raising money from a large group of people and raising capital using social networking sites like Facebook or Twitter or some popular crowdfunding websites such as GoFundMe or Kickstarter.
Various types of crowdfunding can include:
- Debt-based
- Equity-based
- Cause-based
- Rewards-based
- Software value token
- Litigation
Crowdfunding has gained momentum in recent years—meaning that more small businesses than ever use these platforms to raise money. So, before you launch a crowdfunding campaign, make sure you’re taking the time to work out your strategy, including what type of investors you’re targeting, how you’re marketing your campaign and grabbing the attention of your ideal investors, and how you’re going to convince investors that your business is one they want to invest in.
It is necessary to regularly communicate with your backers and update them on how things are progressing. For example, if you’re using rewards crowdfunding to develop your business or launch new product or services, make sure to share regular updates with your investors about how product development is going (including photo and video updates)—as well as up-to-date information about when they can expect to have their product or service in hand.
Customer Prepayments
Another alternative financing option to source funds is to offer a discount to customers who prepay their contracts for a year or more. For example, say you run a maid service business; a way to raise some funds would be to offer package deals or a yearly contract with a discount if they pay for a year’s worth of maid services beforehand.
Fundbox
Fundbox is an online lending solution that offers short-term loans and lines of credit. Once you’re in, your business makes weekly payments based on term lengths of 12 or 24 weeks for lines of credit and 24 or 52 weeks for short-term loans.
Fundbox doesn’t charge start-up fees, and there is no penalty for an early payoff. The application process is more accessible than some alternative lending platforms because it connects to your accounting software or business checking account. Fundbox then uses this information to approve or deny your application almost instantly.
Fora Financial
Fora Financial is a direct working capital lender and provides two options: small business loans and merchant cash advances. Loan terms can extend to 15 months, whereas the MCA terms and payment amounts vary based on the business’s revenue. Plus, there are discount incentives for early payoff.
Business owners must complete a one-page application and upload three months’ credit card statements through the online portal. You can get approved in 24 hours or less and receive funds as quickly as 72 hours.
Companies can’t have open bankruptcies to secure funding and must have been in business for at least six months. Additionally, you’ll need $5,000 in credit card sales or $12,000 in gross sales to qualify.
Accion
Accion is the only nonprofit organization on this list of alternative financial institutions. This nonbank lender specializes in microlending for small businesses. Accion provides these loans through its Opportunity Fund and tailors funding terms to the needs of individual companies.
There aren’t any prepayment penalties, and Accion offers coaching and access to a support network to help your business grow and succeed. The application takes about 15 minutes and requires entering revenue and expenses from your business tax returns.
SBG Funding
SBG Funding is a business financing firm that offers the following loan products: lines of credit, term loans, and equipment loans. Business owners can receive same-day funding and no prepayment penalties.
- Term loans can look like six months to five-year terms with biweekly or monthly payments.
- Lines of credit can be six months to 24 months.
- Equipment loans are 1 – 10 year payment terms.
The requirements are $10,000 in monthly revenue, at least six months in business, and a minimum FICO score of 500. The whole process is online, and you must submit three months of bank statements.
Now you have a few good ideas on which direction to go for alternative financing to start up or grow your business, and while you’re at it, save time and money by getting your company the ServiceWorks app today. ServiceWorks has valuable features like online scheduling integration, route optimization, instant invoicing, client information storage, and more, all designed to save time and money. Best of all, there is a 14-day risk-free trial. So head to ServiceWorks and check it out; you’ll be glad you did.
