One of the most difficult tasks for new business owners is raising sufficient capital. Opening a new business is expensive, and the list of costs can sometimes feel never-ending. At the same time, many lenders are reluctant to lend to new businesses, for fear of financial failure, lack of a comprehensive business history, or other reasons
In such cases, alternative lending can be a great possibility, and a way to avoid traditional lending options. Below, learn about three alternative lending possibilities, and whether one might be right for your new business.
Crowdfunding has become more and more common in recent years, as people turn to platforms like Kickstarter and GoFundMe to finance new businesses. In some cases, websites like these can be great options for funding new businesses. Provided you have some social capital and a wide pool of prospective donors, a call for donations can easily raise substantial funds.
Another form of crowdfunding involves soliciting large dollar donors to invest in your business. This may be more realistic if you have a business idea that appeals to higher capital sectors. In such cases, groups of venture capitalists may be willing to substantially fund your business, potentially in exchange for partial ownership stake in the new company.
2. Equipment Loans
Equipment loans are another useful and non-traditional form of lending. Equipment loans come in handy in businesses where heavy equipment is needed — like restaurants, medical offices, and other establishments. In such environments, heavy equipment is likely to be one of your biggest early costs. Equipment loans can often subsidize or cover the purchase of such items, and often the equipment itself will be the only collateral. In short, it is an affordable way to ensure you have needed machinery.
3. Private Investment
There are many types of private investment, and it should not be overlooked as a way to raise cash for a new business. If you have a wealthy friend or relative, a direct and private loan can be extremely useful in your funding plan. While you may be hesitant to enter into a financial relationship with a close friend or relative, private loans offer the virtue of being able to largely set your own terms and rates. Consequently, you may be able to get an especially favorable deal.
There are many ways to fund new businesses. The three types of alternative lending options above may be useful if you are considering non-traditional financing routes.