Why Alternative Financing Options Might Be Best for Your Small Business

The small business financing landscape is continually changing, with more options than ever before.

learn more about David Sederholt

ByDavid Sederholt

Opinions expressed by Entrepreneur contributors are their own.

The small business financing landscape is continually changing, with more options available to business owners than ever before. Abouthalf to two-thirds of these businessesseek financing from a number of places, from owner investments to non-bank sources. As small businesses continue to face challenges when it comes to gaining access to capital and taking advantage of opportunities to grow, it's important that they're seeking the right type of financing for their particular needs. There's been a lot of focus on "alternative" lending recently, but how do small business owners know when this is the right option to pursue?

One of the most obvious and common answers is that businesses seek financing when they're faced with an unexpected opportunity or challenge that requires quick capital. In my early years as a restaurateur, I built a chain of casual dining restaurants that saw strong growth, solid revenue and profitability. We had all the right elements, but excess cash wasn't one of them. When I was presented with the opportunity to purchase the ideal property for a new location, there was only one issue -- I needed $250,000. I was able to get the money quickly from an alternative lender, and I saw the power in this financing option.

Related:Avoid These 5 Common Small-Business Financing Mistakes

In my case and in the experiences of many others, this access to capital provided me the freedom and flexibility to take advantage of a deal that allowed my business to grow. I learned firsthand that when opportunities like these are handled properly, the benefits can be enormous.

Most of the time, small businesses don't have the cash on reserve or an established line of credit that enables them to withdraw the necessary funds for these types of opportunities. Alternative sources of lending help fill that void by giving business owners access, availability and speed. The reality is that traditional banks aren't equipped to do this -- and it isn't profitable for them to provide loans of under $200,000.

So what are other situations small businesses often face that may benefit from an alternative source of financing? Check them out:

Opportunities

  • Purchasing discounted inventory, raw material or new equipment at a can't-miss price, such as a restaurant looking to make opportunistic purchases of wine during the holidays or a wholesaler in need of additional warehouse space and forklifts
  • Buying out a partner or to avoid taking on a partner who will own a chunk of the business and profits for life
  • Expanding to new locations

Related:How to Write a Business Plan Banks Can't Resist

Challenges

  • Harsh weather that forces a business to close days on end
  • Fluctuations in the economy that impact the bottom line
  • 意想不到的事件,把《e on cash flow and require an immediate influx of working capital, such as a refrigerator that stops working in a restaurant or a farmer needing to process the harvest

To determine what type of financing makes sense for your business and situation, you must consider what exactly needs to be funded and the timing. Alternative lending helps provide flexibility of repayment and offers creative options, including small daily payments that fluctuate with sales volume. It's also important for small business owners to understand the rates associated with choosing an alternative lender. This type of financing is more costly than a traditional bank loan because these companies act as liaisons, borrow capital from other financial institutions and guarantee the payment. Essentially, they absorb the risk and the losses when a client defaults. This is also further emphasized when taking into consideration that an application can be underwritten and approved in hours instead of weeks with a bank.

Whether you're a restaurant, retailer or medical practice, examining your situation closely will help determine the best financing option. Gaining access to capital can be the deciding factor in whether or not a small business grows or survives, so choose wisely when it comes to funding.

Related:How to Measure Your Company's Overall Financial Health

David Sederholt

Executive Vice President and Chief Operating Officer, Strategic Funding Source

David Sederholt is the executive vice president and chief operating officer ofStrategic Funding Source小企业融资公司在纽约City. Previously, he has served as a biomedical researcher, restaurant owner, corporate executive, business consultant and owner of a commercial real estate brokerage firm.

Related Topics

Business News

McDonald's Hamburglar Comes Out of Hiding to Promote Big Burger Changes

The fast food chain brings back its iconic, 'red-handed fugitive' to market updates to the Big Mac, McDouble, and Classic Hamburger and Cheeseburger.

Employee Experience & Recruiting

Essential Questions to Ask at the End of an Interview

Preparing for an interview and looking for the best questions to pose to your interviewer? Read on to learn exactly what to ask.

Starting a Business

5 Unexpected Life Changes You Might Experience When Starting a Business

Running a business sometimes has an unpredictable effect on our lives — but the more we are aware of all the possible takeaways, the easier it would be to overcome each obstacle along the way.

Living

Hustle Culture 'Sucks' — But One Entrepreneur's 'Laziness Principle' Can Make You More Money With Less Work

Dave Asprey, biohacking entrepreneur and author of 'Smarter Not Harder,' reveals how to stop wasting your time and start achieving your goals.

领导

7 Reasons Why Creating the Right Culture Should Be a Leaders Top Priority

Without a positive culture around employees, your business will struggle to survive.