Eight Benefits of Alternative Financing for Small Businesses

business man running up growth line benefits of alternative financing for small businesses

How you choose to finance your business should be a strategic decision based on how you want to grow. Do you want to scale your business quickly over the course of a few years, or are you building something you plan to run for the next decade? The financing solutions you choose will ultimately depend on your answer to the above. If you’re in the first bucket, speed is a crucial component that will determine your business’ valuation down the road. Here are a few benefits of alternative financing for small businesses who are looking for that kind of growth.

1. Get funding earlier in your business’ lifecycle

Getting a bank loan isn’t an easy task. If you’re not already cash-flow positive or don’t have a long operating history, you’re probably not yet qualified for institutional funds. Alternative lenders can often lend to businesses much earlier in their life cycle and serve as a bridge to bank financing.

2. Don’t give up more equity

Many business owners make the mistake of giving up too much equity in their business early on. Check out this article in Fortune and learn why you should think twice about selling too much of your company to investors. Don’t worry, we’ll wait….. Convinced? Good. While you’ll probably need to bootstrap funds from investors at some point, alternative finance can help you grow without having to part with too much ownership.

3. Access capital faster

When time is of the essence, you can’t afford to spend months waiting to find out if you’ve been approved for an institutional loan or pounding the pavement and pitching to prospective investors. Speed is one of the biggest advantages of alternative finance. Loans are easy to apply for and can be deployed quickly, meaning you don’t have to worry about falling head-first into a cash-flow trench.

4. Use it to scale

Alternative finance options allow you to make the investments early on that will catalyze hockey stick growth down the road. Whether you need to finance an innovative marketing strategy, build a strategic partnership, or increase production of your product, alternative financing can help you mitigate cash flow challenges that come with spending significant portions of your operating cash on early, tactical investments.

5. Increase your loan when you need it

If your business is poised to scale and operations are ramping up, you can probably expect that your operating cash is about to start flying out the door. Be prepared to overcome cash-flow challenges associated with rapid growth. Using an alternative financier, you can often increase your loan quickly and efficiently to get the cash you need.

6. Less collateral expectations

Banks often require business owners to put up business and personal assets as collateral. If you can’t repay your loan, your house, car, and personal savings could be on the line. Alternative lenders don’t often require this same collateral commitment which is important if your business is still in the early, exploratory stage.

7. No strict covenants

Bank loans also come hand-in-hand with strict covenants that can be difficult to adhere to. If sales decline, margins tighten, or you lose a key customer, you could find yourself in default. You may also have to spend a lot of time submitting proof that you’re following the letter of the law. Alternative lenders are typically much more flexible and don’t have these kinds of strict regulations.

8. Better customer service

Big banks have even bigger teams managing your account. Alternative lenders often have much smaller teams meaning you can easily reach a real person when you need to. When you’ve got a million other things to do, it’s important to know that you have an advocate who can answer your questions quickly and efficiently.

If you’re considering going with an alternative lender to help you fuel growth, use this checklist to help you get started finding a solution that right for your business. Feel free to drop us a line in the comment section below if you have any questions. 

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