When you are an entrepreneur looking for funding to grow your business, most people will go to the bank to apply for a loan that way. But there are more ways to finance the start-up and/or growth of your business. Indeed, in many cases, alternative forms of financing are more attractive than applying for a loan at the bank. But which alternatives are we actually all familiar with?
What is alternative financing?
Simply put, alternative financing includes all forms of financing that do not come from the bank. Over the years, alternative forms of financing have proliferated and are also becoming increasingly popular. Still the majority of businesses in our country are financed by the bank, but this is slowly changing. And this is not surprising, as alternative financing has a large number of advantages compared to traditional bank loans.
The advantages of alternative financing
Are you an entrepreneur looking to apply for a loan from the bank to invest in your business? If so, you will probably find that this is not an easy task. Banks generally have very strict criteria for applying for a business loan. And this is right where the first advantage of alternative financing comes in: accessibility. Whereas for many companies it is not possible to apply for a loan at the bank because of the many requirements, applying for alternative financing is a lot more accessible. Especially for many start-ups, alternative financing is therefore the solution when looking for a financial boost. The high interest rate on loans from banks also plays a big role in this. Because these are too high for many start-ups and SMEs, they are increasingly looking for an alternative.
Not only accessibility, but also the speed of applications plays a big role in choosing alternative financing. When you opt for a loan at the bank, it often takes several weeks before it is actually confirmed and finalised. With alternative forms of financing, this is often different. In most cases, you can expect the first response within one working day. As a result, financing can therefore be completed within a few days.
Building on the accessibility and speed of applications, applying for an alternative form of financing is often many times easier. Whereas arranging a bank loan often involves a lot of paperwork and physical visits, applying for alternative financing often goes entirely online. As a result, an alternative financing method saves you not only time but also effort.
The different forms of alternative financing
There are various forms of alternative financing available. But which alternative forms of financing do we actually know? We take you through some of the most popular alternatives to give you an idea.
One of the traditionally most well-known alternative forms of financing is attracting one or more investors. An investor can often provide a relatively large cash injection at short notice. Usually, in exchange for the amount invested, an investor gets a stake in the company, which also allows them to have a say in the company’s strategic plans.
Crowdfunding is similar to attracting an investor. However, whereas an investor usually involves one or a few large lenders, crowdfunding involves a large number of individual people (the crowd). Crowdfunding is an increasingly popular phenomenon, used for more and more purposes over the years. Moreover, more and more specially created platforms for crowdfunding have entered the market, which makes initiating a crowdfunding increasingly easy.
Are you looking for capital for new machinery, for example? In such a case, leasing the machine in question is a good option. When you lease, you pay for having machines, furniture or office equipment in use. This way, you have the option of paying for the investment in instalments. Moreover, you can repay the investment with the proceeds from the machine itself. Here, the machine serves as collateral for the financing.
When leasing, you often have the option between financial and operational leasing. With financial leasing, you become the owner of the machine and the leasing company finances its purchase value, which you then repay in instalments. With operational leasing, you rent the machine from the leasing company, as it were. The leasing company thus retains ownership of the machine. At the end of the lease period, there are usually two options: either the leasing company takes the object back, or you can take over the object from the leasing company for the then current value.
Are you looking for extra financial leeway to start up a business? Or do you want to expand your already existing business? In that case, a microcredit is a good option. A microcredit is a loan of up to 50,000 euros that allows starters, but also already active entrepreneurs, to invest in their business quickly and easily. You then repay the loan within a relatively short period of time, getting out of debt quickly. In most cases, you pay a monthly amount in interest and repayments for a period of about three years.