Alternative Lending 101

Alternative lending is a phrase used to describe the wide range of borrowing options accessible to both consumers and business owners outside the realm of normal bank funding. It may actually behoove a business owner to skip the attempt at getting funding from a bank and directly try to procure cash via alternative methods because of the lengthy and work-involved bank application process.

There’s a multitude of different alternative lending methods to keep in mind when considering alternative lending as your primary funding source. A few popular ones are: P2P lending, crowdfunding, B2B lending, merchant cash advance and asset-based funding among many others.

P2P lending is essentially just when one individual borrows money from another person. This is very unsecure, and we don’t recommend using this lending method. B2B lending is when a business can borrow money from a network of online investors (also circumventing the arduous bank process). Crowdfunding is when individuals and/or businesses can donate to your business (usually during it’s infancy) to help you grow it. Crowdfunding usually results in some sort of reward as a result of the donation based upon the overall success of the campaign. However, these tend to be prone to failure for non-viral campaigns.

Something like a merchant cash advance can be helpful because there’s more structure and flexibility than most alternative lending options. A merchant cash advance allows a small business to get a cash advance quickly and has no fixed payment amount. With this option a set percentage of your daily credit or debit sales will be taken to repay the advance — so there’s no pressure if sales aren’t going great.

Asset based funding is when funding is given to a business based on its assets (property, inventory, equipment etc.). This is useful if your business’s cash flow has been slow for a while, you can’t get funding based on that fact and all you need is funding to fix your cash flow issues.

As always you will need to asses your own situation and thoroughly research all the alternative lending methods in order to determine which is the best option for you and your business. It’s critically important to have a specific plan for your funding before you receive it or even apply for it.

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