What Risks are Involved with Alternative Small Business Financing with a Private Loan Lender?

To anyone who has been denied a bank loan to start a small business, it may seem that the proverbial door of opportunity has closed.  Others choose to keep looking for a solution.  For many who are determined to start a small business, alternative business financing through a private loan lender can be a feasible solution.  Alternative business financing is financing that comes from a source other than a bank or standard lending institution.  This includes private investors, angel investors, private equity firms and independently wealthy individuals who choose to invest their fortunes in the future of small business owners.

There are several types of alternative small business financing available to entrepreneurs, but it’s important to understand the risks involved.  Some legitimate financing alternatives include factoring, commercial finance lines, advance pay programs, purchase order financing and supplier guarantees.  Even these widely accepted alternatives have risks including higher interest rates attached to private and commercial finance lines, and reduced realized profits - primarily with factoring loans and cash advances paid against Visa or Mastercard merchant account receipts.

As every situation is different, it is important to weigh these risks and how they can affect your small business’ bottom line.  If all traditional means have been extinguished, then acquiring alternative business financing through a private loan lender could be the only solution, but it doesn’t have to be a dreaded one.  In the case of credit card advances, if the 7%-15% that the lender requires for each card swipe still nets your business the revenue it needs to remain profitable, then accepting a loan to get you through a rough spot could be a viable answer.  Similarly, if receiving a loan for 70% - 80% of your accounts receivable balance will bring your books out of the red, then the ‘risk’ may not seem as high.  Risk, like beauty, lies in the eye of the beholder. Please contact us for more information about alternative small business financing through a private loan lender.