Alternatives to Traditional
Business Loans
If you find that you are having
difficult when looking for business loan then there are a number of different
potential funding avenues that you may want to investigate. In fact, you may
want to investigate these alternative financing methods even prior to beginning
the business loan application process.
In regards to obtaining debt
financing, the alternative to this in general is that you could seek to raise
capital from angel investors or a venture capital firm. These companies
specialize in making equity investments into companies that have substantial
growth potential. However, unlike a business loan, an equity investor will
require that you sell shares of your business to the individual or investment
firm. Additionally, many professional investors will want a substantial say in
regards to the direction of the company, and they will want to sit on the board
of directors.
Another alternative to a
traditional business loan is a business line of credit, which much like a
business loan, can be secured by real property that you already own. If you do
not require one lump sum of capital in order to launch of expand your operations
then it may be in your best interest to secure a line of credit that you can
drawn down as needed. Much like a business loan, a formal business plan,
personal financial statements, credit checks, and collateral checks will be
required to secure this type of financing.
If you are already in business,
you can also obtain a cash advance on your accounts receivables or credit card
receivables based on your monthly volume. However, these business loans usually
carry very high interest rates as they are secured ultimately by your customers’
ongoing ability to you. This is often referred to as factoring, and this method
of obtaining a business loan or line of credit is really only appropriate if you
operate a capital intensive business.