When conventional credit markets become tight, businesses are pushed to seek unconventional financing methods to fund their business. Even though most of these unconventional financing methods have been in operation for a long time, there are some new methods that were spawned after the credit crisis in 2007/8. A business would ultimately be pushed to seek unconventional business loans when they cannot obtain conventional business loans. Hence, they need to know the pros and cons of using these unconventional methods. This article provides a comprehensive overview of unconventional business loans.
Purchase Order Financing – This is a popular method of unconventional business loans that have been in operation for some time. Most start up businesses face situations where they cannot accept large new orders initially. This is because they don’t have enough cash to build and deliver the product. This is where Purchase Order Financing companies come in handy. Such companies would advance the required funds directly to the supplier. This will allow the transaction to proceed and the business to benefit from better orders and sales in the future.
Credit Card Lenders – Credit card lenders offer good credit for people having a decent credit history. Businesses can have early and easy access to credit this way. This method has so many drawbacks, too. Credit card financing is usually limited in the amounts that could be borrowed by the customer. This is based on the borrower’s ability to earn and repay the loan in a timely manner. The interest rates are quite high since the lending company doesn’t depend on any collateral in granting the loan. A payment delay will send your credit card rate soaring. This is why you need to think twice before availing yourself for such an unconventional business loan.
Personal Financing – Personal financing is one of the best ways to start up a business. Many people don’t consider this as being a creative method of financing their business. In fact, many “wannabe” businessmen don’t think of saving any money before they venture into business. Most would not think of using their savings to start the business. This is another great source of unconventional business loans.
Peer To Peer Lending – This may include family, friends and even strangers if they are interested in your success. These types of loans can be obtained on formal or informal agreements. The benefits include easy and quick access to the loans and flexible repayment terms. The downside of the loan is non-business issues can get intertwined with the loan. Family or friends may have other expectations from you by offering the loan to you.
Customer Lenders – This scheme of business loans started in the early 2000s with the famous Community Supported Agriculture loans (CSAs). The method expanded to retail markets like the local food markets thereafter. A business should be well-established in the neighborhood to participate in such loan schemes. The company should have a good list of customers while earning the trust of them.
Micro-Loans – There are many lenders who are willing to offer small loans to businesses. Most companies offer micro loans up to $35,000 for small businesses that can’t get bank loans. Small Office/Home Office (SOHO) loans and Patriot Express Loans are good examples in this regard.
In conclusion, unconventional business loans are becoming popular with individuals who cannot avail their businesses for conventional bank loans. There are so many ways of receiving these loans in today’s society. Even if a business doesn’t have a good credit history, they can still avail themselves for unconventional business loans. This article provides a comprehensive guide to unconventional business loans.