crowdfunding for business: Is there a Better Business Loan Alternative?
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crowdfunding for business: Is there a Better Business Loan Alternative?

By now, we’re sure you’re familiar with crowdfunding for business platforms such as Lendingclub, GoFundMe, Kickstarter and more. While sites like these have helped many entrepreneurs and businesses raise millions of dollars to fund new project ideas and the development of many goods and services, the success rate isn’t so high and might not be the right type of business funding for your company. For example, studies show that only 3.1 percent of 20,000 campaigns on Indiegogo were successfully funded. While we wouldn’t want to deter you from a great crowdfunding for business opportunity, having realistic expectations and a backup plan to get the funding your business needs is always a good idea for a few reasons.

First, having an appealing and marketable product, service, or project is key – especially if it is one with a limited target audience. Secondly, it is extremely important that you have a good amount of backers to support you. Friends, family, your online following, and existing clients and customers will be crucial in helping to get the ball rolling in terms of putting up some money and spreading the word. Once you get past them, and hopefully get a few large donations, the rest is hit or miss. Fortunately, many business crowdfunding sites allow you to keep whatever money you’ve raised whether you hit your target or not, however, sites such as Kickstarter will not let you keep anything if your goal is not reached. At the end of the day,  crowdfunding for business is a great source to get the money your business needs for a new product, service or idea, however it is high risk in terms of spending time creating the campaign, marketing it, and ultimately getting enough backers to raise the funds required. What should your backup plan be?

Well, when it comes to applying for a business loan through a bank, many businesses who use crowdfunding for business and alternative lending sites will find themselves ineligible. For starters, many of these businesses are young and still in what could be considered the startup stages. This is almost always a no-no for big banks and traditional lenders. The inability to show longevity puts your business at risk. If your business is past the startup stage and has a good track record, receiving additional funds through a traditional lender will still be quite the feat. Strict paperwork requirements, a lengthy application process, and the wait time for an approval or decline (this process can take weeks to months) causes many business owners to shy away out of fear or unfortunately, due to not qualifying. There is, however, still hope. Consider financing through an alternative lender. Here are a few options:

  • Merchant Cash Advance: Short-term financing transactions that are collected through a set percentage of your Visa and MasterCard sales that are accepted at your place of business. Probably the most common term used in the industry. These do not have a set repayment schedule and are based on the volume of your businesses credit card processing sales. These are usually only guaranteed by the future sales of your business.
  • ACH Loan: These are a bit different than cash advances as they are considered loans and may have personal guarantees. They have a fixed repayment schedule that is paid either daily, weekly or monthly. These products are catered to industries that do not accept credit cards and need a fixed payment.
  • Business Term Loans: A loan that is backed by a bank for an exact amount that has a specified repayment timetable and interest rate that are adjusted accordingly. Terms mature between 1 and 10 years.
  • Business Lines of Credit: A rotating loan that gives business owners access to a fixed amount of money, which they can use day-to-day according to their need for cash. Interest is only paid on the amount of the advance actually used.
  • Equipment Financing: Any type of loan or extension of credit to a business, with the purpose of helping the business acquire new equipment. Equipment financing can take the form of a lease, SBA loan, and or not restricted to Merchant Cash Advances and ACH Loans.

Aside from the flexibility and the fact that funds from these financing solutions can be used for anything pertaining to the business, the other great thing about all of these funding solutions is that each requires no collateral or personal guarantee, and your personal credit score is not affected. Majority of alternative lenders only require a simple one-page application,  four months of recent business bank statements, and four months of recent credit card processing statements (if your business accepts credit cards) to present business owners with an offer and funding in a matter of days. Whether your crowdfunding campaign falls through or simply isn’t as successful as you had hoped and you need additional funds, financing through an alternative lender could be just the answer to your funding problems!

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