8 reputable alternatives to big bank loans
There are numerous alternatives to traditional bank loans. With alternative banking solutions on the rise, you can easily secure capital or a soft loan online without having to physically walk into a bank. Online loans, crowdfunding, cryptocurrencies, and third-party payment services such as PayPal are all desirable alternatives. This article highlights some of the most reputable alternatives to big bank loans.
1. Lines of credit
Abbreviated as LOC, these are forms of business financing services you can secure a loan with a bank or an online platform. Compared to term loans, LOCs are easier to secure online than from banks. A line of credit can work as either a source of capital or as a financial safety net for businesses.
LOCs operate by granting a sum of money that is accessible at any time, and interest is only charged on what you borrow. An online line of credit is a great alternative financing option for businesses that need an extra source of capital to cover costs such as payrolls during slow times.
2. Online loans
Most online money lenders offer the same services provided by traditional banks. However, loans offered online are easily accessible especially in this more connected and internet savvy world. Key details and information can be easily exchanged resulting in much coveted convenience. Rapid Loans offers a range of products that is a good alternative from conventional bank loans and has good online facilities for everyone.
3. Equipment financing
This is when you borrow money to fund a purchase of equipment needed for business processes. Equipment financing encompasses both leases and loans. If you can afford the down payment, this is a great alternative when purchasing equipment or machinery with long-term utility.
When you cannot afford the down payment, a lease will be the most appropriate option. A lease is also a better option when the equipment requires frequent upgrades or repairs.
4. Invoice financing
This is a type of loan where the lending company grants a line of credit but collects your unpaid invoices as collateral. The weight of the line of credit will depend on the dollar amount of your invoices.
However, the financing firm does not buy your unpaid invoices, and it’s, therefore, your responsibility to collect the invoice payments from customers. This is the complete opposite of what happens in invoice factoring, where you sell your unpaid invoices for liquid cash, and the responsibility of debt collection passes to the lending firm.
This is a smart way to raise funding from business peers online. There are typically four forms of crowdfunding: equity, charity, debt, and rewards. In rewards crowdfunding, you will not have to pay the lender, but you are expected to give something in return. With equity crowdfunding, people invest funds into your company in exchange for a share of your product or company. Most crowdfunding platforms charge a fee.
6. Personal loans
If you happened to be trapped in the startup phase without a significant flow of revenue into the business, securing a traditional loan can be difficult. Luckily, you can use a personal loan for business purposes.
Personal loans are structured as installment loans, and the interest rate and your eligibility are determined by your household income and creditworthiness. However, personal loans are smaller, with a cap ranging between $35,000 and $50,000. If you need a bigger loan, then personal loans are not an option for you.
These are small business loans, not exceeding $35,000, offered at low interest rates. This type of loan is extended to new businesses or startups that require working capital. They are a great alternative for disadvantaged or under-represented groups such as minority-owned businesses, veteran-owned businesses, and women-based businesses, including those with a bad credit score.
Historically, banks have not been willing to extend such small loans, but alternative lenders have ventured into the microloan space.
8. Business grants
This is an elusive funding alternative dubbed “free money.” It is typically the hardest business loan to get, but if you feel you are eligible, you should check your grant options. Most business grants are funded by the government through NGOs, but it’s not uncommon for private businesses to offer grants.
StreetShares, for example, it’s a small and medium business lender that grants up to $15K to women-owned businesses and veteran-owned businesses. Innovative technology startups are eligible to apply for up to $1.5 million in grant funds from the Small Business Innovation Research (SBIR), which is a federally funded grants program.
Story by Ramond James. Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.