Using Alternative Lending for Your Small Business
If you have ever approached a traditional bank for a small business loan, you may have been turned away without the money you needed for expanding your current business or starting a new one. Banks are usually seen as being set up to only loan money to those who do not really need it. For the business owner seeking to fund a new project, it can feel like the proverbial “Catch 22” situation. A business obviously needs funds to get started, but the bank normally only lends money to established firms. In all fairness to the traditional banking institutions, they were ostensibly established and exist theoretically to generate profit by making loans that represent little to no risks. Stepping outside the accepted parameters that represent a safe level of risk for the bank tends to undermine their business model. That is where alternative lending practices are sometimes able to fill the gap. These institutions generally run leaner and with less overhead than banks. They typically are able to meet the less traditional borrowing needs of today’s small companies and startups.
Alternative lending institutions may be able to provide loans that represent more risk, but that is not to imply that they operate exclusively in the subprime market. One way a small or startup company can expand or get going through the use of these lenders is to develop a detailed and transparent business plan. These non-traditional lenders need as much information about your company and how the borrowed money will be used for them to possibly justify the decision to loan you money. Your business plan should normally spell out the details of how you plan to be successful, and, by implication, pay back the money. It is generally a good idea to include as much detail as possible without overwhelming the potential lender with irrelevant data. At the very least you probably should include vital numbers like assets, liabilities, projected cash flow and break-even points. Including this information could help the lender see that you are serious about building a successful company.
Another practice that may help you achieve success with alternative lending is to establish and protect both your personal and business credit. If you have some problems with your personal credit history, it does not automatically spell disaster. Some work may have to be done by you to improve your personal credit as much as possible. Make sure, however, to keep your business credit in as close to perfect shape as possible by meeting all obligations and paying all bills on time. By making it a point to pay early, you will be developing habits that may not only help you obtain needed funding but will likely help you be successful in your business venture.