For many years, if you wanted a loan to finance your business, your only option was going to the bank. Times have changed, though, and there are now a host of non-traditional small business lending options. If you need money to get your business off the ground or to expand it, here are a few options:
- Peer-to-Peer Lending
A peer loan is a loan from one or more investors, instead of a financial institution. Although you are getting the loan from individuals, you still need to go through a peer-to-peer lending website. You’ll apply through that website, and you must meet the minimum requirements for the company to accept your loan application and post it on their marketplace. Then, investors can see your loan request and choose to fund it.
These loans typically include an origination fee paid to the company that runs the marketplace, and moderate interest charges paid to the investors who fund your loan. Terms are typically 1 year or longer. Overall, peer loans are a solid option that won’t break the bank when it comes to interest.
- Title Loans
If you’re only looking for a short-term loan, then a title loan is one popular option. With these type of loans, you’re getting the loan from a title loan company, and you’re using your car as collateral. You keep your car during the loan repayment period, and the lender hangs on to your car title until you pay off the loan. If you default on the loan, the lender can repossess your car.
Your car’s value determines how much money you can get through a title loan, and the application process for these type of loans tends to be very fast and easy. The problem with title loans is that they almost always have very high interest rates, and if you can’t pay your loan off in time, you’ll get stuck with more interest charges.
You should try to avoid these type of loans if at all possible and only use them as a last resort, as they’ll cost you quite a bit in interest. If you do end up taking out a title loan, make sure that you’re going to be able to pay it off by the due date.
- Merchant Cash Advances
If your business sells a product or service, you can apply for a merchant cash advance where you are essentially selling future credit and debit card transactions to the lender. The lender advances you the money, and then you pay them back the loan amount plus interest when you’ve made enough sales.
Like title loans, these loans are very easy to obtain even if you don’t have great credit and your business isn’t profitable yet. They also have very high interest rates, so you’ll end up losing quite a bit of your profits when you pay these loans back. However, there’s little risk involved with these because you usually don’t need to guarantee repayment should your business go under.
- Low-Interest Credit Cards
One option that you should consider if you only need financing for about a year or less is a low-interest credit card. There are several credit cards on the market with 0-percent APR for an introductory time period, and the standard length of that introductory period is 12 months. You will need a good credit score to qualify for these cards, but if you do, you can get the financing you need for your business without paying any interest.
The important thing to remember with these cards is to pay off what you owe before the introductory period ends to avoid getting hit with a large interest charge.
There are many lending options on the market for you to choose from. While banks are often a good choice, also look for alternatives that may better fit your needs.