Alternative Sources of Financing for Small Businesses

So how can business owners fund their operations?  According to the Small Business Administration, there are four main reasons small business seek financing: starting a business, purchasing inventory, expanding the business, and strengthening the firm.  There are many traditional options for pursuing financing.  Credit cards have always been a big source of emergency funds with 79% of small business owners reporting using credit cards to start or grow their business.  Many individuals also seek financing from friends and family members, or dip into personal savings and retirement accounts.  These are risky sources of financing, however, with big personal liability issues that are difficult to resolve.

For these reasons, alternative lending opportunities have dramatically increased in number to fill the void left by big banks as they reduce their small business lending.  The number of angel investors seeking out promising startups has exploded, competitions where businesses compete for grants are increasing, and crowdfunding platforms like Kickstarter and Indiegogo are more and more popular.  In fact, there are now 191 crowdfunding platforms active in the United States, having provided $2.8 billion in funding to small business, with Kickstarter alone having launched more than 260,000 projects (Statista).

The most promising new form of financing for small businesses is online lending.  As Jamie Dimon (JPMorgan Chase CEO) put it , “Silicon Valley is coming,” saying that “there are hundreds startups with a lot of brains and money working on various alternatives to traditional banking…the ones you read about most are in the lending business.”  Even Larry Summers, the former Treasury Secretary, has endorsed online lending, saying that he believes “technology based businesses have the opportunity to transform finance over the next generation.”  Here are four of the most promising new online lending platforms.  And remember, to learn more about entrepreneurship through franchising, and the plethora of financing available to franchisors, attend our free monthly webinar “Franchise Ownership as a More Stable Career Path” by registering at this link or by contacting The Entrepreneur Authority at (866) 246-2884. 

Lending Club

Lending Club is the biggest peer-to-peer lender in the United States.  A peer-to-peer lender connects investors with excess cash to borrowers directly, generally in the form of unsecured loans through the Internet.  As the worlds largest online credit marketplace, Lending Club offers business loans or lines of credit of up to $300,000, with rates starting at 5.9%, making it cheap, easy, and quick to find financing for your business needs.  

OnDeck

OnDeck is another online lender using technology to make borrowing quick and painless.  They offer short terms loans up to $250,000 over 3-12 months, long term loans up to $500,000 over 15-36 months, and lines of credit up to $100,000 for cash when you need it.  Their main focus is lending to small businesses, and they’ve already delivered over $3 billion in financing, leading to the creation of 74,000 jobs and $11 billion in U.S. economic impact.

Kabbage

Kabbage purports to be the #1 online provider of small business loans, specializing in providing lines of credit from $2,000 to $100,000.  With on online approval process where it takes literally minutes to apply and receive a decision, Kabbage has funded over 100,000 small businesses with more than $1 billion in loans.  Unlike OnDeck, which requires your business to have over $100,000 in annual revenues, Kabbage provides credit to businesses with at least $50,000 in annual revenues.

Headway Capital

Headway Capital is a fully online lender that provides lines of credit up to $35,000 at affordable rates.  They use sophisticated analytics software to evaluate your credit worthiness using not just your credit score, but a host of other factors in a holistic review process.  Headway Capital is a Chicago based subsidiary of Enova International, a leading online lender that has serviced over $15 billion in loans to more than 3 million consumers.