Bad Credit Business Financing: Alternative Capital as a Bridge to Bank Loans
Alternatives to small business loans have grown both in popularity and exposure over the last few years, primarily because of a lack of other financing options for many small businesses that don’t meet the heightened credit requirements many banks adopted in response to the Great Recession. While bank lending to small businesses has ostensibly thawed, it is still not enough for the majority of small business owners, many of whom are either too small, don’t possess enough collateral, or are too new to successfully approach a bank. Alternative capital attempts to fill this gap in the credit market with financing options that are both expedited and available to businesses with financial histories that would disqualify them from a bank loan.
Business owners should view alternative capital as part of their road to business loan eligibility. While alternative capital has higher costs associated with it than bank loans, the expedience with which they can be accessed as well as their wide availability make them extremely useful in the right context. Business owners will often use them to act on short windows of opportunity or to grow their cash flows through increased production capacity. By increasing their ability to create revenues, small business owners can get through difficult periods where they would otherwise have no options for obtaining capital. As their business grows stronger, renewals of their financing will come with better terms. After growing and repairing credit these businesses can become eligible for more traditional financing through business loans such as 504 programs backed by the SBA.
Finding a funding partner that is willing to work towards a business’s goals is the key to successful financing. The key to a business’s growth while using alternative capital is to create a relationship with a company that is able to offer them a stable relationship. The speed with which this type of financing is available, as well as the convenience of being able to apply remotely represents legitimate disruption of the processes typically associated with applying for capital, and is one of the major benefits of this type of financing. Provided that the company working with your business is able to clearly and appropriately represent itself, alternative capital can represent a very viable step in a business’s growth.
Photo Credit to Metropolitan Transportation Authority of the State of New York on Flickr