The modern entrepreneur requires fast access to flexible capital in order to be both successful and competitive. By moving away from relying on traditional bank loans and exploring more agile solutions, entrepreneurs can utilise methods of alternative financing to secure the capital needed to scale a business. 

Why Traditional Bank Loans Aren’t Always an Option

While traditional bank loans have been financing businesses for generations, in the modern age of entrepreneurship this approach to lending can be limiting. This is largely because securing a business loan through a bank can be a detailed process.

When approaching a bank for a business loan the lender will require everything from a detailed business plan to collateral and access to records that determine a businesses’ financial health. These strict assessment requirements can take time to collate and present. 

The Alternative Lending Landscape: Options for Entrepreneurs

In an operating landscape where speed is paramount in order to both seize opportunities and remain competitive, entrepreneurs need lending options that can meet such demands. With alternative lending, processes are characterised by speed and flexibility to deliver real solutions.

Private lending 

One method of alternative lending is private lending. This type of financing involves a non-institutional entity providing the loan directly to the borrower. Offering a more personalised approach to financing, private lending enables flexibility around repayment terms and interest rates. To provide security to the lender, the borrower is often asked to put up collateral. 

Asset-backed lending 

Asset-backed lending is a way to utilise things a business owns such as real estate, equipment or inventory, as collateral in order to secure a loan. In most cases, upwards of 90% of the asset’s market value can be financed. 

Revenue-based financing 

With revenue-based financing, businesses essentially provide a percentage of their future earnings in order to gain the capital needed to succeed today. To determine the amount of capital, lenders will look at the company’s financial history by connecting to back-end systems. From there, a monetary advance will be provided with the company expected to repay a percentage each month. 

Peer-to-peer lending 

Offering access to a diverse borrower base, peer-to-peer lending looks to connect private investors with people who need their money. Peer-to-peer lending is characterised as one of the more accessible forms of alternative financing. 

Private Lending vs Venture Capital: Which Is Right for Your Business?

In the modern lending landscape there are many different avenues for entrepreneurs to consider when it comes time to secure the capital needed to scale. In order to understand which option is right for your business, entrepreneurs need to be well informed. 

Private Lending vs Venture Capital

With private lending, entrepreneurs have access to a stream of capital where securing financing is fast and terms are flexible. Importantly, in order to secure this capital, no percentage of ownership needs to be transferred.

In regards to venture capital, funding is offered in exchange for equity in a company. While this might not be ideal for some operations, venture capital is often seen as the only viable option for start ups with no brand presence and unpredictable cash flow.