An overview of small business lending options.
Small business bank loans are but one of many small business lending options. Naturally, as new entrepreneurs come into the market, they expect that the bank is going to serve as their primary source for small business bank loans. While this works for some, many small business owners face roadblocks while securing this form of business lending because banks are not in the business of taking risks, and thus require business owners to meet a long list of stringent requirements before they consider lending a loan.
Riskiness comes with the territory of entrepreneurship, and as such, it is important to note that small business lending options extend far beyond small business bank loans. Bridge financing loans, marketplace/peer to peer (P2P) lending, and venture capital are just a few of the alternatives to small business banking that understand the nature of entrepreneurship and work to provide lending to small businesses.
Bridge financing loans are a form of lending for small business wherein a lender issues your company a small loan while you wait for a larger one (e.g., a small business loan from a bank) to be approved, or for a significant payment to be made.
A marketplace/peer to peer lending environment is one where the decision-making structure is decentralized (unlike personal and small business banking, which operate under centralized decision-making structures), and each lender sets their own lending standards with borrowers directly. As such, the limits of loans can be adjusted as a borrower’s needs change.
Venture capital, unlike loans from the bank, is equity-based. This form of small business lending is transactional in the sense that investors will provide temporary or permanent capital in exchange for shares in your company. It is ideal for startup firms that tend to operate in environments of extreme uncertainty because venture capital firms do not require assets, revenue, or operating history (required by banks to provide small business loans) in order to lend capital.