When the bank turns you down for a business loan, it can be tempting to just give up and close the doors. There are alternative lending options out there, however, for startups and small businesses such as government programs, crowdfunding and angel investors. Researching these options can help you find the best one for your financing needs and keep your business running stronger for longer.
Bootstrapping and Crowd Funding
Bootstrapping, or self-funding, can be a good way to tough through difficult business times and keep going on your ideas. For startups, this can mean putting more time and effort into your plans and getting more established before trying a bank loan again. Established businesses can cut more expenses, build a better budget and stretch out savings.
Crowdfunding is another option that does not require a lender. This is where you ask the general public to invest in your company, usually in exchange for exclusive products. It can be a good way to gauge interest in both the products offered and in your company itself, giving you the opportunity to refine your plans from the beginning.
Microfinance Lenders and Government Programs
Government programs and microfinance lenders are alternative lending options which may be available to you because of your industry, product type or local area. Some government programs will even offer grants instead of loans if you meet the qualifications and abide by the regulations. Many companies will use these two options together by researching available government grants while submitting a loan application to microfinance lenders. It is important to remember that it can be easier to get a loan from a microfinance company than a traditional lender, but the rates will be higher.
Angel Investors and Venture Capital
Angel investors are individuals with excess funds they are interested in using to help small businesses in exchange for a share of the profits, they will usually work in groups and jointly research companies for investments. Venture capitalists are similar but are professionally managed investment platforms for backers to join. When you are funded by venture capital, you are offering a share of equity in your company, which gives these investors more control of the business. Both these types of investors will provide mentorship to the businesses they help fund and can offer valuable advice for the startup.
Alternative lending sources can be a way to get the funding you need when the bank rejects your loan application. Some of these are easier to secure than others and the funding amounts will vary depending on the source, your needs and the risks the lenders take on.
