The owners of small and medium sized companies get frustrated when they need money for expansion, operational needs, or for startup capital if they have to deal with the traditional financing institutions. So now businesses require alternative financing for money lending which will reduce their stress and therefore at present alternative lending is gaining popularity.
Types:
- Business to business lending: It is the best option of money lending for the companies that require affordable financing. In this, transactions are mainly done in between businesses. It involves wholesalers, retailers, manufacturers etc. This loan is to provide help with inventory lending, real estate financing, payroll etc.
- Equity based crowd-funding: This is a platform that provides help to the entrepreneurs and those who had started their companies. It enables the companies that are not listed in the stock market, to raise their capital required for early stage. The shareholder holds half ownership of the company and if there is profit then it will be divided between the company and the shareholder. Thus, an individual gets a chance to showcase their business and if it becomes successful they may project it to entire country or in the whole world. In this, investors can be individual or in groups.
- Line of credit: These are mainly used for handling seasonal credit-demands, emerging funding or cash-flow gaps that are temporary. It you establish a line of credit with the lenders then you can withdraw the funds whenever you want but there will be a borrowing limit for it. It is the best way to improve or build credit score. The interest rate should be in between 7% to 25% and it is calculated on the basis of daily average outstanding balance.
- Merchant cash advances: These are given to the businesses if they exchange a portion of their future sales. The repayment is done mainly on daily or weekly basis and the amount of repayment is deducted from the bank account of the company.
Infographic provided by Startup Loans USA, a business startup loans company
