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The Evolution of Small Business Funding

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As a small business owner, there are a number of situations where you will want to turn to a lender to help capitalize your business. Business funding is a key tool to help your business become successful.

 

Traditional Business Funding

Business funding has changed significantly since the economic downturn. In the past, traditional banks were the first stop for most small business owners. They had a neighborhood branch, knew the staff, and went there first when they needed a loan.

 

As the economy turned, however, bank requirements for small business loans became increasingly more stringent, and small business owners who were hurt by the economy no longer qualified for loans.

 

In addition, traditional banks began to rely on numbers and eligibility in their underwriting instead of considering overall banking relationship. This bothered entrepreneurs who felt that their relationship with the bank should be a deciding factor.

 

Business Funding is Changing
Today, small business loans through traditional banks continue to be scarce. While the economy is showing signs of improvement, banks are targeting larger, safer commercial loans.

 

Small business owners are also modifying the way they approach business funding. They prefer leaner, targeted loans tied to operations rather than large loans secured by everything they own. Since personalized loans are not appealing to traditional banks, other alternative types of business funding are emerging.

 

Nonprofit Small Business Funding

Nonprofit organizations created to help small business owners succeed will also lend capital to their members. These organizations are not out to make a profit, so the terms are usually quite favorable.

 

If you are able to work with a nonprofit lender, you can expect to get additional business consulting as part of the package, which is a great bonus. However, the demand for this type of loan is great, and the organizations are few. For this reason, the application process can be very time-consuming.

 
Nonprofits also may have a target business in mind that you don’t fit into. For example, they may want to make loans to small businesses serving a specific neighborhood or community.

 

CrowdFunding

Crowdfunding was created to provide equity by having a large number of people pool their investments together. This type of funding is done completely online and compensation to the investors can range anywhere from a “gift” such as a branded version of the product being financed to cash or equity repayment.

 

Crowdfunding is best used by small businesses looking for a one-time investment, and usually, the capital raise is relatively low. It can be hard to get follow-up business funding because the small business then has a financial obligation to a large number of investors.

 

Alternative Lending

Alternative Lending is a term that describes funding options available to small and mid-sized business owners outside of traditional bank funding. This covers a wide range of funding opportunities, such as accounts receivable lending, inventory factoring, merchant account loans, working capital lines of credit, equipment financing and much more.

 

Alternative lending is appealing to business owners for a number of reasons.
With alternative financing, there are so many financing options available that there is probably a good fit for just about everyone. The goal of alternative financing is to identify the underlying need for the business funding and find the right solution to meet that need. This personalized approach is very attractive to small business owners.

 

Alternative loans can fund very quickly as well, usually within 1-2 days rather than the weeks that it can take for other sources of funding. Many small business owners find the timing alone to be a compelling reason to seek an alternative loan.

 

Business funding has certainly changed in recent history, and there are more choices available than ever before. If you are ready to learn more about the different business funding options available to you, talk to a funding advisor at Advance Funds Network today.

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