Whenever traditional credit markets go through tight circumstances, most businesses and individuals look for alternate lenders to acquire financing. Ever since the 2007 to 2008 credit crisis, more options have appeared, giving individuals and business owners new access to financing sources.
Industry leading company, Corporate and Medical Finance Ltd, suggests that you learn about the popular financing alternatives and their benefits and drawbacks.
Credit Card Lenders
Most people who want to start a business usually rely on credit cards for their finances. This option gives them the advantage of early and easy access to money if their credit history is clean.
Credit cards, however, only allow people to borrow based on their validated ability to repay the loan. The rates can be high and if the borrowers make late payments of fail to pay any outstanding bills, they will have to deal with penalties.
Convertible Debt Instruments
These are asset-backed loans that ask business owners to hand over some of equity that their company will receive in the future. This happens when the lender requests to exchange the debt to an equity position in the business.
If the lender does not want ownership and is just after the repayment, this is a less risky feat for business owners compared to getting a straight equity investment. Other risks and disadvantages for the borrower include the possible loss of equity if the business does well in the future. The lenders will also require the owner to settle unconverted debt if the business does perform below the budget.
It is important to make informed decisions when it comes to your company's finances. Compare all the financing options available to get the funding that you need. Consider all the benefits, risks, and disadvantages before you make a decision.