There are already hundreds of crowdsourcing sites online and here is how they work. If you are looking for an alternative type of business loan, you sign up for an account and place your project online. Users of the site and can read about it and decide if they want to invest. Investments are based on what you decide you will take for a stake in the project. It could be stock or just a rate of return depending on how you set things up.

In many cases, individuals can invest a few dollars and spread their investments over dozens of opportunities to hedge their bets. The benefit to an investor or lender, is that they can minimize their risk by investing lesser amounts in many different projects as opposed to risking it all on just one.

What’s So Great About Crowdfunding?

The benefit to the borrower is, that if presented correctly, they can entice investors to take a chance on their business and raise capital without getting a traditional business loan from a bank. In theory it all sounds good but the obvious problem is the risk of “the scam”. How can investors really trust the borrower while relying solely on the terms of service of the website and how can the investor trust that the website itself will be in business long enough to handle the transactions?

Danger aside, crowdfunding statistics show over $1.5 billion in capital raised in 2011 alone, so regardless of our thoughts on the matter, it is an intriguing way to finance a business. The reason the subject is so interesting right now is that the SEC is expected to lay down rules for crowdfunding in the United States some time in 2013. If the SEC is on board, this will not only regulate the practice, but bring a sense of trust and legitimacy to the process.

For now we have to look abroad for indicators of how this trend is moving. It is true that the majority of capital raised is from the United States, but the platforms used are based outside the US where these money raising social platforms are legal.

One of the most interesting numbers from 2011 is the fact that nearly 80% of the crowdfunding projects raised over $25,000. That is a significant amount of money for a small start up or existing venture looking for capital to avoid traditional business loans.

We always focus on the business lending side of things but crowdfunding can be broken down into reward based funding, charitable donations, equity and lending. So there are other opportunities for both borrower and investor that can be studied. Because we are a business loans company we pay particular attention to the lending model where the lenders receive interest income only until the original loan is paid back. The other models fall beyond the scope of our expertise.

So should you consider crowdfunding as opposed to a business loan? It seems that there would be too many unanswered questions so early in the evolution of this type of borrowing. Because of the peer-to-peer grassroots lending model it has the possibility of gathering momentum but there at this state of the game there are better ways to find a business loan to safely raise the capital you are looking for.

The politicians in support of the bill claim its passage would create over $13 billion in freed up lending capital and create almost 150,000 jobs a year with absolutely no cost to taxpayers. It sounds too good to be true, and you know what that means.

What business owners want and need are favorable business loans, and if you look below the surface of the bill, you will see that it probably will not deliver. What seems like good legislation only tricks people into thinking help is on the way.

Credit Unions have tax advantages over Community Banks which handle most of the small business lending we hear about. The credit unions are limited by the percentage of their assets they can lend and raising their caps would do nothing more than shift loans in process in the Bank pipeline over to the Credit Union pipeline. So who really benefits besides the tax advantaged credit unions?

Nobody, and here’s why.

Credit Unions already have a nice piece of the business lending market and their loans which are less then $50,000 do not even go towards their cap. So the extra money they have to lend as a result of the legislation would turn their focus toward larger, and much riskier, commercial loans where they have little expertise. The last thing we need is for Credit Unions to venture out into these waters.

The appeal of these types of loans can lead to Credit Union failures just like we saw with traditional banks. Remember Credit Unions do not pay taxes like community banks who pay nearly a third of their revenues to the government. So this Act, which is technically a government subsidy for Credit Unions, will harm the Community Banks much more than it will help the Credit Unions.

The most important thing to realize here is that while the Small Business Lending Enhancement Act may shift the power for small business lending toward Credit Unions, it will do nothing for the people who need access to business loans in order to create the jobs promised by the Act itself.

While its passage will create some competition in the marketplace, the consumer will not really benefit from it. It most cases it would not matter, but if when we are talking about the government teaming up with a certain segment of an industry, then the consumers should be the ones to benefit from it.

Will the cost of a loan be cheaper for a borrower? Probably not. Will loans be easier to get? Not a chance. So what’s the point?

The point of the Act really is to help politicians look good in election year by promoting legislation that sounds good to business owners because they think help is on the way. It may create more revenue for Credit Unions, but only by harming Banks already out there lending.

For people in need of business loans, there will be no difference because if you cannot qualify for a bank loan then will not qualify for a credit union business loan either. The key is to understand the options you already have in front of you whether you are a start-up or looking to expand.

We recently touched on the subject of credit union business loans with an understanding that although interesting, it probably does make too much difference for people with little business credit history.

However, Loans have always been out there and are easier to get than ever and we can get you qualified for a minimum of $50,000 based on your personal credit score no matter what the Politicians are doing.

So of note is last weeks Treasury report to Congress illustrating the growth trends in new business loans from participating lenders in the Small Business Lending Fund. They point out that those lenders in the fund are doing better than those who are not, which proves that the government backed program is worth all the fuss.

While it is true that the last quarter of 2011 shows over $1 billion in growth over the third quarter, and nearly $5 billion over the program baseline average, but what do the numbers really mean?

Remember, the Fund was created to encourage growth and hiring from business owners by granting easier access to business loans. The program was designed to absorb some of the risk of participating lenders adjusting limits and streamlining their origination process. But the recent numbers could just be a sign of the times because the baseline used to assess the program was made by using the average numbers from the 4 quarters immediately preceding the Act’s start date. If nobody was borrowing due to the credit crunch then it is hard to verify that the lenders are more willing to lend as a direct result of the Act.

As with most reports to Congress, the facts are presented in a positive light and the sheer number of statistics is overwhelming. To think members of Congress actually understand how the program works and how to judge if it continues to be successful, is asking a lot from our “elected” officials. But, the numbers certainly add up and politicians who have taken credit for the creating the Small Business Lending Fun can now bask in the glory of taking pictures of each other shaking each other’s hands in front patriotic landmarks in their districts.

However, if the increased business loans are indicative of anything, it would be to serve as proof that most of us are being left out in the cold. The Small Business Lending Fund provides easier access to business loans for very well qualified borrowers who would have been able to secure financing without its existence.

The average business owner in America is not well qualified and not attractive to lenders. So what we hear on the news, of C-SPAN for that matter, is not necessarily a valid assessment of what is happening on the front lines. It is true that any good news about the economy serves as a vote of confidence for business owners and consumers alike, but does it accurately reflect the experiences of mainstream American’s? Let us know what you think.

Few realize that Credit Unions enjoyed no limit lending until 1998 when a strict 12.25% cap based on their total assets was imposed which.   The current push to raise this cap to 27.5% has issuers of traditional business loans on edge but most feel it would help the economy.

The infographic below illustrates the history of the fight and what the passage of S.2231 would mean for small business owners around the country.  Of course only well qualified borrowers will be pursued by the aggressive credit unions if they are allowed to increase lending, but the following insight should  be interesting to all.

There are plenty of lenders out there with funds for business loans and the good ones will help you learn how to get them. It is always strange to me that lenders are shocked when their borrowers are not familiar with the process. So hear is what you need to remember before you apply. Please keep in mind the 5 C’s Of Credit.

• Character – How you have handled credit in the past.
• Collateral – Security you can provide for the lender for repayment of the loan.
• Capital – The money you have personally invested in the business.
• Conditions – Describe the intended purpose of the loan and how your niche fairs in the market.
• Capacity – The ability to pay back the business loan.

Capacity is the most important decision for a lender who is interested in making a loan. They must decide if you have enough cash flow to make the payments. Then they must consider the length of time it will take to pay it back and if they think you can really do it.

This is all part of a banks risk assessment for the loan. But keep in mind that in order to stay in business, banks and lenders need to make loans. They want to approve you based on the above. So never be afraid to ask for a business loan.

When you go in to apply make sure you bring three things with you to.

• Tax Returns from the last 2 years
• Personal Financial Statement
• Your Business Plan

Next, be prepared to answer a few very basic questions about your intent.

• How much money do you need?
• How long will you need it?
• What are you going to do with it?
• How are you going to pay it back?
• And, What will do if you don’t get the business loan?

If you have a good understanding of everything mentioned above, you will be ready to discuss getting a business loan from your bank or business lender. But what if you don’t?

What If I Don’t Qualify For A Business Loan?

What if you learned about the 5 C’s of Credit and don’t have a business plan? What if you don’t know exactly how much money you need or market data about your niche? How then, do you get a business loan?

You've Been Approved!

The answer is to ask for one. Just ask for it from the right people. There are more loan programs out there than you could ever count. There are several programs for first time borrowers with no business track record or plan. Many are used to establish your business credit for the first time.

For those with no business track record or are first time borrowers, unsecured business loans are an attractive option. They are easy to get and can be based on your personal credit history and require no collateral for the bank.

A lot of business owners don’t even realize that loan programs like this exist but sometimes they are much more attractive than traditional SBA loans. There are few, if any, restrictions on how the money is used and the loan can even be used to pay down existing debt.

Today’s economic conditions require creative financing and getting an unsecured business loan may be the perfect answer for people looking for a business loan to keep their doors open or expand for the future. Fill out the form on the right to get qualified absolutely free!

Part of the problem is the size of government. Believe it or not, it is shrinking. Cutting the fat saves on costs.

Spending money to attract business has always been important, but it has been cut back in many areas. Cities and States have problems just providing basic services. So priming the pump is now not an option for some areas.

Providing loans to create more jobs is the goal, but few seem willing to step up to the plate to make it happen.

Why Lenders Won’t Lend

Even the Federal Reserve low interest loans program has not made it much better for business owners tap into the funds. Lenders are trying to clean up their balance sheets so the process has simply gotten tougher.

Lenders want to write off bad debt. They also want to avoid future risk. As a result, it is now just harder to get business loans.

Because so many people need help finding loans, the Small Business Authority is trying to step in. They offer services which help to find and structure business loans.

The goal is to help businesses survive tough times and prepare them for future growth. Here are 3 of their current programs. Are you prepared to take advantage of them?

Flexible Term Lending Program: This program provides loans from as little as $50,000 and up to $5million. The terms range from seven to twenty five years and depend partly on how the proceeds are to be used. The rates can extend up to 2.75% over prime and float. Any “For Profit” Business in the United States can apply.

Fixed/Floating Rate Program: Here the terms are much the same as above but rates can be fixed based on current market rates. It should be noted that neither program allows proceeds to be used for real estate.

Conventional Real Estate Loan Program: This is the program which allows proceeds to be used in buying commercial real estate. You can even use the loan to upgrade, refinance or expand your property. Rates can float or be fixed with terms up to 30years with loan amounts up to $5million.

The fact that such programs may be welcomed news to some but how hard is it to get approved? Like most loan programs these days, lenders are looking for low risk applicants. Many small business owners feel they no longer appeal to lenders.

The truth is that many small business owners have had change their approach to business. Times are tough, and have been since 2008. Many owners have been forced to find creative ways to keep their doors open. But it can come at the expense of their business credit.

We hear a lot about late payments on business loans along with downsizing of employees and shrinking services. During this credit crisis people who have had to make tough choices when managing their money. The result for many has been denial of new credit.

It just does not seem fair but there is good news for business owners who are looking for loans. There are great business loan programs out there for nearly every one. In fact those looking to avoid government backed loans that contain limit use of proceeds may be in luck.

Borrowers want to be use to use their money how they see fit. But most business loans contain several restrictions. Did you know that very few people even know they can get approved for a loan using their personal credit?

Being turned away by the big lenders may not be such a bad thing. It has allows small business owners to learn about other ways to find loans. In many cases the loan terms are even better for the borrowers.

If you have not explored other types of business loans seek them out. If you would like some guidance, you can get pre-approved for free by filling out the form on the right. Getting a business loan has never been easier than it is right now.

Since the credit crunch began over four years ago the trend of big banks saying no to business loans has been at the heart of the industry so small business lenders have had to turn to alternative capital sources to continue their operations and try and turn a profit in a severely depressed economy. There were a few alternative lending sources which came to the forefront by 2011 and they seem to be going string early in this first quarter.

Alternative Business Loans Making News

Chief among these hot new sources for business loans are Credit Unions, Community Development Financial Institutions, Micro Lenders and Accounts Receivable Financers. The methods for determining growth in new loans from these types of sources are shown in the increase percentage rate in approved loan applications compared to the total number of applications submitted. The trend shows that these alternative lenders are approving more loans while traditional business lending banks are declining.

Credit Union Business Loan

Remember, a credit union is not a bank, it is a member owned institution. Therefore, the rules governing the issuance of loans differs from traditional banks in many ways. In 2011 the requirements for reserves Credit Unions could have tied up in business loans was relaxed which gave them room to aggressively enter the business loan market. In fact, collectively, they are lobbying the Government to nearly double their 12.5 percent cap on business lending in the near future.

Since credit unions are member owned they tend to be thought of as more “local” and have a vested interest in the communities where their members live. The rise in their loan approval rates are combination of several factors but competitive rates, access to more of their reserves and an understanding of local small businesses are the main reasons.

CDFI Business Loan

You may have also heard of a CDFI, or Community Development Financial Instituion, which is simply and financing entity giving business loans under the guise of community development. Special legislation back in 1994 gave rise to these institutions which have access to lending fund backed the U.S. Treasury.

Loans which do not qualify for traditional bank lending can often find help through a CDFI program which has the freedom to get a bit more creative with their funding programs. Again, these mainly focus on local business to business products because the Community Development funds are ideally suited to enhance local markets in combination with other community building efforts.

Micro Lenders

The term micro lenders refers to lenders who make small dollar amount business loans to entrepreneurial type businesses commonly in depressed areas. Not only do many inner city revitalization zone qualify for certain types of micro loans from non-traditional lending sources, but we often see web sites for individuals to make micro loans to needy people looking to start businesses in third world countries. It is a chance for individuals with no credit or bad credit histories to get a chance at starting a venture with very little investment.

Accounts Receivable Business Loans

These types of loans have long been know as factoring. Simply put, a lender will buy a portion of a companies account receivables at a discounted rate in exchange for money in the present. When the accounts are collected the balance owed is paid to the lender.

In factoring, a business owners can expect higher rates because some transactions are based on high risk so the lender is justified in the charges. These are to be avoided unless in very unique circumstances.

With the exception of credit union business loans, the other alternatives are not in the best interest of the borrower. Unless these loans are extremely short term, it is best to look for other options. If you are looking for competitive business loans in a nontraditional package, then fill in the form on the right and let Seed Capital do a free application to determine your needs.

Technically a merchant cash advance is a business loan because you are borrowing money for your business but traditionally most people think of a loan is going to a bank and getting an SBA loan. Creative ways to finance businesses have always been around but saying that they are equivalent to a business loan is simply not true. It does not mean they are necessarily bad but they are definitely different than what we commonly believe a business loan to be.

Some would argue that a business cash advance is actually better for those with questionable credit because the terms focus more on what may happen in the future than what has happened in the past. Considering today’s economic climate, there are lots of business borrowers out there with less than perfect credit and this may be what makes this type of loan seem appealing.

Although we do not endorse any type of business cash advance, proponents of these programs definitely make them sound terrific. They are touted as a solution for start ups without any credit history and require no collateral. They point out how quickly their approval process is and that there are no personal guarantees required to get funding. Further, there are never any hidden fees because you know exactly what you will pay back before you get your money.

It really does sound great, but the same could be true for many other business loan alternatives so don’t let the sales pitches fool you.

What Will I Pay For This Alternative Business Loan

We are glad you asked because we don’t really know. This is where it gets confusing. Even as stated above, there is no requirement for business age order to get a cash advance but your time in business will reflect in your fee. Also, most of these types of loans are based on credit card sales. So first things first, you need to accept credit cards as a form of payment to qualify for a business cash advance.

If you do not take credit card payments there may be hope because even this creative financing can get creative, but typically accepting credit cards is part of the program. The actual fees and required payback period are generally dependent on your sales volume over the previous 6 months. This program is considered high risk for the lender and that risk is reflected in the fee.

Here’s how this Business Loan really works

You often here about the flexible terms that coincide with a business cash advance and while this is true, again it does not mean it is necessarily good. Your payment is based on your gross sales. If your sales go down then you pay less at that moment and if they go up you pay more until your loan is paid off. Let’s make this simple.

Business Cash Advance Amount: This is the amount you receive as your business loan and is usually based on your sales for the 6 months prior to application. We see loans granted between 80% and 125% of the average monthly sales.

The Fees: The fees are called factors in the industry and they are quite high due to the risk. We see them average between 20% and 45% of the total cash advance amount but have seen them higher for businesses that are more risky for a lender.

Retrieval Rate: This is the amount a lender takes out of your daily credit card sales in order to pay back the loan. The retrieval rate will be less than your Factor Rate so there is enough money on hand to keep the business going but it is usually between 15% and 25%.

Let’s Do the Math. If your “business loan” is for $50,000 with a rate of 35% (fee) and a daily retrieval of 25%, then you owe the lender $17,500 in interest and this will be paid back daily as part of your sales. The higher your sales, the quicker it will be paid back but your fee is still the same.

The good part is that a business owner will not have a high interest rate business loan hanging over their heads because it will be paid back shortly. If the business fails, then the lender takes the hit. But, it is a good bet that the lender has received most of their investment back should this ever happen.

It is true that the business cash advance is quick and easy but should never be confused with a traditional business loan. It is what it is and it is nothing more than a cash advance which should be treated with the same apprehension as they are on the consumer side.

For those who have been turned down for a business loan in the past, they often feel that chances of them having their own businesses are over. That is simply not true, but if you have been keeping track of the business lenders over the last year or so, you would think your only unsecured business loan alternative is a merchant cash advance.

It is certainly an alternative but not always a good one to manage a sustainable business. Many companies swoop in offering a Merchant Cash Advance when a traditional bank says “no” to a business loan and they make it seem like a miracle. A merchant cash advance company makes it easy to apply and can give you an approval within 24 hours in many cases. So let’s take a closer look at this type of business loan.

For the purpose of defining a merchant cash advance, let’s say that it a creative way for a business to get capital based on sales. You basically get a predetermined loan and pay it back when you receive money on your sales. If you sell less than you plan, then you pay back less. If your sales are up, you will pay more and pay the loan off quicker. It sounds great doesn’t it? On the surface yes.

You will see many lenders say that a Merchant Cash Advance is the best way to have access to capital on an ongoing basis to run your business more effectively than other borrowing sources. But as with most instruments, the marketing is flashy and clever leaving a prudent small business owner to dig deep for all the facts. But let’s be fair, there are certainly some niches where a business loan in this form has a very strong appeal.

But let’s be as clear as we can about the difference between a traditional business loan and a merchant cash advance which is touted as the alternative.

A Merchant Cash Advance Is Different Than A Business Loan

From the perspective of a Merchant Cash Advance lender their product has many benefits. A traditional business loan comes with a lot of restrictions before any funding can take place. There has to be good business credit, a solid business plan and at least some sort of track record to justify the granting of a business loan. And this really is true because a because a business cash advance lender focuses on what may happen in the future as opposed to what has happened in the past.

A traditional business loan may require:

• 2 years of financials that show a good repayment record
• Certain types of collateral IS required
• A stringent drawn out application process

A merchant cash advance company has an answer for all of that. Namely that there is no need for years of financial paperwork, no collateral needed because the business loan will be based on future sales and a very quick approval process. In the end the Cash Advance lender will tell you they won’t turn you down and the chances of unlimited loans from them are very high.

This all may be true but at what cost. A merchant cash advance is very expensive compared to a traditional business loan because they assume a very high risk. This is fair but most businesses should look to a high cost loan as a sustainable business model. There are unsecured business loan alternatives out there and they are just as easy to get.

For example, Seed Capital offers a quick turn around program with a minimum guarantee of $50,000 in working capital all while establishing future business credit. There are no strict requirements as with a traditional business loan and the turnaround time for the application processes is quick. And did I mention the application is free?

So do not get too hypnotized by the clever marketing strategies of the merchant cash advance lenders when you are hunting for a business loan.

Credit Union Business Loan
CDFI Business Loan
Micro Lender Business Loan
Merchant Cash Advance

This year shed light on several ways to get a business loan.  Some were good, but as the industry changes, so much remains the same. When big banks said no to a business loan, others stepped up to fill the void.

Credit Union Business Loan

First and foremost, a credit union is different than a traditional bank because it is owned by its members and technically not for profit. They tend to focus on customer deposits for revenues and attempt to originate competitive mortgages for their members. Membership to a credit union usually comes at a minimal cost and used to be industry specific. But things have changed and just about anyone can apply for membership. A credit union does have the ability to give out a business loan to its members but they amount of assets they can earmark for business loans is currently capped at 12.5%. There is a major push to raise this cap and allow credit unions to increase their place in the credit markets.

CDFI Business Loan

A little different, but also focused on extended local credit, are Community Development Financial Institutions, or CDFIs. They have been around for nearly 100 years but did not gain significant momentum until the creation of the Regulatory Improvement Act of 1994 when the Treasury got involved in funding CDFI initiatives and programs. Because of this Community Development Financial Institutions have access to SBA guaranteed business loans which expose lenders to less exposure than non-guaranteed funds. The CDFIs originated because these very lenders largely ignored communities in need who were plagued by poverty or lack of foreseeable profitability for a financial institution. Since the credit crunch of 2008, CDFIs have been a very viable alternative for those looking for a business loan.

Micro Lender Business Loan

In much the same spirit of credit crunch lending, Micro Lenders gained enormous popularity because of the ability to get very small loans without much credit history, if any at all. Initially most of the micro business loans were granted by private lenders in economic empowerment zones. An empowerment zone is an actual area which is designated for social, economic, physical and spiritual development. Before the establishment of such zones, these areas were again those neglected by traditional financial institutions who saw no upside to making a business loan based on the geographical location of the entity. But once capital was flowing into the area due to legislation, micro lenders began to look at a local business loan as an opportunity. A typical micro loan is around $1000 or less, but there are programs for up to $50,000 which can still be considered a micro business loan.

Merchant Cash Advance

The last alternative funding source making news this year were Accounts Receivable Lenders, now commonly referred to as Merchant Cash Advances, saw dramatic increases in applications since the credit crunch. The merchant cash advance has evolved slightly over the years and is a business loan based on future credit card sales. Business owners pay back their predetermined loan when they receive payment from their credit card sales. The upside that if sales do not meet expectations, then the merchant pays based on the lower sales. The rates are high but for merchants with the need for quick cash to keep their businesses running while waiting on money from sales to trickle in, this is an attractive option.

Of all the business loan options above, Credit Unions seem to be the most favorable for the borrower. However, as with most favorable programs these business loans are for very attractive borrowers only. If you do not have a high PAYDEX you will not be approved. The other options do serve their purpose but accept for very specific businesses merchant cash advances are too expensive to be worthwhile and micro loans simple do not provide enough money to be safely capitalized for long term success.

So as evolution of alternative lenders over the past year shows there in new interest by borrowers to get a business loan which if nothing else shows that the capital markets are on the upswing. But, even the most prudent business borrower need to be comfortable with all the elements of such programs before agreeing to sign on the dotted line.