Lenders like CEI differ from banks in a few ways. If banks see « poor credit, » that business will almost always end up in the « no » pile. CDFI lenders look at credit scores, too, but in a different way.
« We look for borrowers who have been fiscally responsible, but we understand that unfortunate things happen to good people and businesses, » Sporzynski said. « We seek to understand what happened and assess its relevance. » [See more information on choosing the right small business loan for you.]
For instance, personal or family medical issues and job losses can all negatively impact a borrower’s accounting, but those can all be explained. Also, CDFI lenders do not need nearly as much collateral as a traditional bank would. Other things can https://worldpaydayloans.com/payday-loans-ga/jasper/ compensate for a lack of assets to be used as collateral.
2. Venture capitalists
Venture capitalists (VCs) are an outside group that takes part ownership of the company in exchange for capital. The percentages of ownership to capital are negotiable and usually based on a company’s valuation.
« This is a good choice for startups who don’t have physical collateral to serve as a lien to loan against for a bank, » said Sandra Serkes, CEO of Valora Technologies. « But it is only a fit when there is a demonstrated high growth potential and a competitive edge of some kind, like a patent or captive customer. »
The benefits of a VC are not all financial. The relationship you establish with a VC can provide an abundance of knowledge, industry connections and a clear direction for your business.
« A lot of entrepreneurs lack the skills needed to grow a business, and even though they can make money through sales, understanding how to grow a company will always be a lost cause in the beginning, » said Chris Holder, author of Tips to Success and CEO and founder of the $100 Million Run Group. « The guidance from an experienced investor group is the best thing, as the mentorship is key for everyone. »
Did you know? The benefits of a VC are not all financial. The relationship you establish with a VC can provide an abundance of knowledge, industry connections and a clear direction for your business.
3. Partner financing
With strategic partner financing, another player in your industry funds the growth in exchange for special access to your product, staff, distribution rights, ultimate sale or some combination of those items. Serkes said this option is usually overlooked.
« Strategic funding acts like venture capital in that it is usually an equity sale – not a loan – though sometimes it can be royalty-based, where the partner gets a piece of every product sale, » she added.
Partner financing is a good alternative because the company you partner with is usually going to be a large business and may even be in a similar industry, or an industry with an interest in your business.
« The larger company typically has relevant customers, salespeople and ming that you can tap right into, assuming your product or service is a compatible fit with what they already offer, which would surely be the case or there would be no incentive for them to invest in you, » Serkes said.
4. Angel investors
Many think that angel investors and venture capitalists are the same, but there is one glaring difference. While a VC is a company (usually large and established) that invests in your business by trading equity for capital, an angel investor is an individual who is more likely to invest in a startup or early-stage business that may not have the demonstrable growth a VC would want.