The yearly rate for start-up creation during 2016 was 6.1 percent, according to the Challenger, Gray and Christmas, Inc. 2016 Startup Report. The same report indicated that the creation level of 6.1 percent was the biggest yearly average since 2009. Clearly, a lot of people are getting into the startup game. To do so, entrepreneurs typically need outside funding. Alternative lending is funding that doesn’t come from big banks. Today, we’d like to talk about the hottest alternative lending solutions for startups. One of them may be right for you.
Is Peer-to-peer Lending the Answer?
Often referred to as P2P lending, this form of lending is a debt financing process which gives people the option of borrowing and lending money without needing to utilize official financial institutions as intermediaries. According to Investopedia.com, peer-to-peer lending takes the middleman out of the equation, but requires extra risk, time and effort, versus traditional “big bank” lending setups. According to P2P Prosper Loan Company, the minimum credit score for a borrower is 640 and loan amounts vary between 2,000 and 35,000 USD.The American Upstart platform has given out three hundred million dollars in P2P loans since its inception two years ago. Funding Circle provides the same services. Funding Circle is based in the UK and focuses on helping SMB owners.
With P2P lending, people who loan out money may access higher returns than they’d get from bank CDs. However, interest on the money that they earn will be taxable. Borrowers will enjoy cost benefits, compared with interest rates that they’d need to pay at credit unions or banks.
Does Crowdfunding Fit the Bill?
When you choose crowdfunding for your new biz startup, you’ll fund your company by raising a variety of smaller amounts of cash from a large quantity of people. This fund-raising usually happens online, where it’s so easy to do business quickly. If your crowdfunding pitch hits the target with a platform audience, you may hit the jackpot.
Since smaller businesses are facing struggles to survive, and there is a risk of failure, crowdfunding gives startup entrepreneurs the chance to put their companies and ventures in front of a global audience and overcome the usual obstacles to success. According to Forbes.com, there are a host of crowdfunding platforms out there, including RocketHub and KickStarter, which allow startup owners to market their projects, list rewards based on donation levels and add photographs.
What About Regular Funding Options?
Alternative lending solutions are great options, but you should still consider regular funding options. As an entrepreneur, you’ll empower yourself by looking at all funding options and then making the most appropriate and cost-effective choice. According to venture capitalist, B.J. Lackland, traditional loans from big banks do offer one big advantage, along with a major drawback.
In terms of pros, bank loans for startups usually have relatively low interest rates, particularly if entrepreneurs opt for SBAs. SBAs are loans for small businesses which are guaranteed via the SBA and then issued via participating lenders. The primary “con” is that it’s tough to get approved for these loans, especially if a company is in the early stage. You may need to sign a personal guarantee to get loan approval from a bank.
Now that you know the options, from peer-to-peer-lending to crowdfunding to conventional bank loans, you’ll be ready to chart a course for funding your startup. Researching each option in depth will help you to make the right decision. Once you access funding, you’ll be ready to bring your vision for your startup to fruition.