The concept of alternative business financing is easy to understand; it simply means finding alternatives to a conventional bank loan to fund your operations. You might need one of these alternatives if your business is brand new with no track record to show lenders, or if you have a shaky credit history. How do you determine what type of financing might be right for your business?

Benefits of Alternative Financing

Alternative lending can offer your business several benefits. Qualifying for nontraditional sources of funding can be easier than obtaining a bank loan would be. The interest rate you will pay to an alternative lender could be lower, depending on the type of financing model you choose. The application and approval process is likely to be faster and less complex as well. Perhaps the most underrated advantage of alternative business financing is that it can be more flexible and customizable to the unique needs of your company.

Some Popular Options

You may be familiar with some of the most common means of alternative lending. Because no financing option fits every company, it’s best to consider which model matches best with your business circumstances.

You’ve no doubt heard of crowdfunding sites like Kickstarter; perhaps you’ve even donated to a budding business on one of these platforms. With this model, you raise money by pitching your brilliant idea online and offering funders a concrete reward in exchange for their cash. Crowdfunding is one of the simplest ways to raise money for your business and is great for a startup that’s hoping to launch something completely new.

Peer-to-peer lending is another online source of funding that is somewhat like crowdfunding. In the case of peer-to-peer (or P2P), however, you are trying to attract an ongoing investing or lending relationship, rather than many small one-time donations. The targets of your pitch are investors who bid for the chance to finance your company or project. You then choose the funder or funders you think are best for your business. Some funding offers may require you to give up some of your company’s equity (ownership), so be sure you’re comfortable with those terms before agreeing.

Invoice financing or accounts receivable financing is a funding model in which you offer your unpaid invoices to a lender as collateral for immediate financing in the form of an advance on a percentage of the invoice total due. You can also sell some of your invoices to a factoring company outright for a certain percentage of their worth. As should be obvious, this financing alternative only works if your company regularly invoices customers instead of operating on a cash basis.

If traditional funding sources won’t work for your company right now, don’t lose heart. Investigate the alternative options available and choose the funding model best suited to keeping your business growing.