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Be cautious when using alternative lending to fund your business

There are a lot of wildly-creative people out there with some great business ideas. If you happen to be one of them and are ready to start your own business, all you have to do is get a little funding.

That, unfortunately, is exactly where a lot of wildly-creative ideas end up dying. Thanks to their shady past involving questionable wheeling and dealing, many banks are being very stringent about the loans that they give out these days. They often don't see the value in the creative, only the tried and true.

That may lead you to seek alternative funding, which is absolutely fine as long as you do it carefully. Depending on what type of business you are starting, what you already have to your name and whether or not you already have a business of your own (or are planning to acquire another), one of the following types of alternative financing may appeal to you:

  1. Asset-based lending may be available if you already have a business and are seeking to branch out. You generally have to leverage existing assets, like current business property, against the loan. It's an option often used when companies buy real estate for expansion or investment purposes. For example, people who "flip" houses for rent or sale may benefit from this type of lending. Typically, there is some level of risk involved, because the industry is not regulated. That makes it a wise idea to get legal advice before you commit to any terms. Otherwise you can end up paying far more interest than you need to pay, and it can cripple your long-term plans.
  2. Crowdfunding has become increasingly popular, especially for quirky business ideas and people who don't have a lot of assets to leverage against any other type of loan. However, crowdfunding requires time and a pretty strong social media presence to be successful, so it isn't for everyone.
  3. Financing based on revenue ties the loan to your future profits. That allows for flexible repayment terms since the repayment amount goes up and down with the ups and downs of your company's revenue. However, it's also unregulated and requires careful scrutiny in order to make sure that you aren't getting yourself into a contract and loan you'll regret later.

As always, be cautious and consider legal advice before agreeing to any financing contract.

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