Capital is critical to running a successful small business. You can use small loans borrowed from family members to start a business, but eventually, you’ll need institutional capital to scale the business. Essentially, businesses require significant cash infusions during the startup and growth phases. Finding loans from banks and credit unions can be frustrating and scary, especially if you have a low credit score. Worse still, unrealistic repayment terms could impair your company’s growth for a long time. While alternative financing methods for small businesses are numerous, you have to choose the one that’s right for your business. First, read the erc FAQs, the ERC is designed to reduce the total amount of taxes a business owes, and is intended to lessen COVID-19’s economic impact on businesses. This article outlines the different types of alternative financing for small businesses.
1. Private Loans
The term “private money loan” refers to a loan obtained from a private investor. Borrowers receive private money loans without going through the traditional criteria of conventional lending institutions. Like a hard money loan, a private money loan comes with some level of freedom and versatility. However, the hard money lender or private money lender may charge you a higher interest rate compared to rates offered by a traditional lender. Sometimes, the high interest rate stems from businesses with high yield potential.
The downside to private lending is that it poses a significant risk to both the lender and borrower. To mitigate the risk of default, the private lender may check the borrower’s credit score to determine their creditworthiness. Most times, lenders conduct background checks to confirm the integrity of the information provided by the borrower.
Similarly, private money borrowers must verify the source of the lender’s wealth before accepting any loans. Making sure that money is legitimate helps mitigate being complicit in illegal business ventures in future lawsuits.
2. Peer-to-Peer (P2P) Lending
Otherwise known as “crowdlending” or “social lending,” peer-to-peer (P2P) lending enables business owners to obtain financing directly from other individuals. This alternative way to get money for a business is quickly becoming a popular way to get cash quickly. Many P2P lending websites connect borrowers directly to lenders. The websites set their rates and terms according to their specifications.
Business owners also use cryptocurrency exchanges for peer-to-peer lending as it helps save money on transaction fees using traditional channels. The cryptocurrency market is rapidly evolving to take over the financial space. So, if you want to get money from people in your social network, you might want to use a crypto exchange.
If you’re still not sold on crypto exchanges, check out the Coinsquare review to get answers to all the questions you may have. Coinsquare is the number one crypto exchange for Canadian cryptocurrency users, who get to fund their accounts using Interac e-Transfer, direct bank deposit, or wire transfer.
Coinsquare was initially a bitcoin exchange, but it has evolved to feature different cryptocurrencies, including Ethereum, Bitcoin Cash, Litecoin, Ripple, Dogecoin, altcoins, and DASH. You can also trade using the Advanced Trade mobile app. Keep in mind that there are trading fees that you might have to pay. The fees often vary depending on the trading platform you choose.
3. Investment Crowdfunding
Investment crowdfunding is a good alternative way to get money for a business that involves getting investors to put in a lot of money. In exchange, the investors are granted equity shares in the company. Investment crowdfunding is exclusively reserved for accredited investors.
Aside from buying shares of the company, investors can also buy a small part of a large loan. In return, they receive a high interest rate due to the credit risk associated with the borrower. To mitigate losses, the lender should know what the loan is for and the terms.
Entrepreneurs can also find seed money through investment crowdfunding to start a new business. The best part about granting the investors equity ownership is that they bear all the risks. If the business fails, you are not liable to indemnify them.
