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Melanie King

Director of Public Relations at Lendio

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Options Abound for Small Business Financing

October 24, 2017

Whether you are seeking quick access to cash or financing for long-term growth, your small business has loads of non-traditional ways to obtain working capital.

It’s no secret that non-traditional lenders are reshaping the small business lending landscape. Online lending marketplaces, for example, can provide your small business access to a wider variety of loans, quicker financing, and more favorable terms than the traditional lenders of the past.

Online lending marketplaces are just one way in which your small business can find new sources of funding and capital. Several non-traditional lending models give businesses of all shapes and sizes options for obtaining money to stay afloat or grow.

Online Lending Marketplace

An online lending marketplace can bring a variety of loan options together in one place, from short-term specialty financing to long-term, low-interest traditional loans. You submit one common application and receive options from multiple lenders at the same time. Some marketplaces, such as Lendio’s, provide free consultative services to help you select a loan product and complete the loan process. A variety of loan types are available through online lending marketplaces.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending connects your business with private lenders, who may be individual investors or investment firms. P2P lenders conduct a matchmaking process — similar to a reverse auction — online through intermediary companies, which do credit checks on borrowers and may charge both borrowers and investors/lenders a fee to participate. Due to low overhead, P2P lending companies can offer loan options with lower interest rates than traditional lenders, while giving investors an attractive return. P2P lending has emerged as a way for lenders/investors to support businesses that align with socially-conscious business goals.

Crowdfunding

In crowdfunding, a large number of individuals provide small amounts of money to your business, most often to help finance new ventures or products. It uses the power of social media to connect businesses with supporters, many of whom are prospective customers interested in helping a business launch a desired new product or service. You pitch your ideas and funding goals on one of several crowdfunding websites, which take percentage fees from the funds raised. In some cases, you will offer a direct return to investors in the form of an equity stake in the company, or special access to or discounts on the products or services created with the funds raised. The model is an effective way to build customer interest in your business and its offerings. You can also use crowdfunding to initiate philanthropic and civic projects such as disaster relief, medical expenses, and public initiatives like playgrounds and community gardens.

Angel Investors

Angel investors are typically independent, wealthy people — often entrepreneurs or retired executives — who support small businesses through investments or partial ownership. They seek high returns on their investments and often want some level of control, such as the ability to provide advice or direct your company’s operations in some way. Therefore, many angel investors are interested in funding startup companies. Finding an angel investor can be difficult; they often come from personal relationships such as family, friends, or business colleagues. Fun fact: the term “angel investor” has its roots in Broadway theater, where wealthy benefactors give money to back theatrical productions.

Venture Capital

Venture capital is the flip side of angel investors. Both back startups and entrepreneurs, but venture capital comes from investment banks and other financial institutions, in return for a large amount of equity in your business. Like with angel investors, venture capitalists may provide business advice or expertise and often require some measure of control over company decisions. They often look to fund businesses that are well-managed and are poised for substantial growth and thus require you to submit a fully-developed business plan. Most venture capitalists and firms specialize in a particular industry with which they have investment or operational experience.

Invoice Factoring

In invoice factoring, your business converts its outstanding invoices to immediate cash. Most factoring companies provide two installments to borrowers and charge them a fee for the service. Unlike accounts receivable financing, the factoring company actually owns the invoice, and payment on the invoice is made to the factoring company instead of the business. This non-traditional form of lending is typically suited for short-term cash flow problems or critical expenses, not for big capital investments.

Whether you are seeking quick access to cash to keep your business afloat or financing for long-term growth initiatives, your small business has loads of non-traditional ways to obtain working capital, including a variety of loans with higher approval rates and lower interest rates than traditional loans.  The time has never been better to consider non-traditional source of funding.

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