What are the Guarantees with Alternative Business Financing?

When a business owner or new entrepreneur seeks financing through alternative financing, there are many factors that are similar to seeking a business loan through a bank or financial institution.  With alternative business financing, the lender is a usually a private investor, equity firm, or angel investor.  They will all require documentation on the business, to include a business plan for newer businesses, previous two years tax returns, and projected financials for at least one year.

Whereas when applying for a personal loan, or a personally guaranteed loan, the business owner’s personal credit is used to qualify the loan, alternative business financing is valuated by the strength of the business, or a business model – in the case of a startup.  Many times, the creditworthiness of the business is determined by a qualifying credit score with Dun&Bradstreet or Experian.

Once the requirements of the loan - to include the aforementioned items - are met to the lender’s satisfaction, then the business owner will receive funding.  This is usually a guarantee not offered by traditional lenders – which determine loan approval by credit score, and outstanding and available credit.  Requiring higher interest rates minimizes an alternative lender’s risk, and sometimes, fees attached to the loan.  If a business owner is accepting of these terms then, his/her likelihood of receiving funding is much greater than with a traditional loan.