The recent inflation surge and stock market crash have led several banks to tighten their purse strings. This left borrowers with limited funding options, especially those with low- to no credit.

Fortunately, the new golden era for alternative lending is on the rise. Its market reached over ten billion USD in 2022 and is expected to grow over 15% compound annual growth rate (CAGR) within 2023-2032. Factors like increased access to capital, lower costs, flexibility, and innovation and technology have propelled this market growth.

Here are the most popular alternative borrowing options this 2023:

Personal Loans

As its name implies, a personal loan can be used for any personal reason you have. Borrowers can also use it for unexpected expenses, such as medical bills or funeral costs, or planned spending, such as moving expenses, home renovations or repairs, vacation costs, and wedding expenses. It can also be used to refinance other loans, such as through debt consolidation.

For businesses, a personal loan is often based on equity and personal surety. Many personal loan lenders look at a company’s creditworthiness and capacity (i.e., debts and income) instead of a business’s history, cash flow, annual revenue, and credit, so it can be a good option for new and small businesses that don’t have reliable track records yet.

The same goes for individual borrowers. Most personal loans are unsecured, meaning they don’t require collateral. Many personal loan lenders also ask for fewer and less stringent requirements. On top of all, some can offer tailored options depending on a borrower’s financial needs and capabilities, ensuring that the borrower can take out a loan.

Personal loans aren’t only provided by alternative financial institutions. They’re also available at traditional banks and credit unions. Moreover, they’re usually paid with interest, which is usually lower than other borrowing options, on a regular schedule over a predetermined loan term.

Cash Advance

Another go-to financial solution to cover an unforeseen expense is a cash advance. It has several types, including a bad credit cash advance, credit card cash advance, payday loan, and merchant cash advance. These options are often taken by borrowers who don’t have much time to go through a typical loan application process.

For example, for a credit card cash advance, a borrower can access funds at a nearby ATM with their card or go to a physical bank to withdraw the money in person. Unlike other loans, there’s no need to fill in requirements or make a loan application.

However, a credit card cash advance must be taken with caution. Unlike a regular credit card purchase, it has higher interest and will accrue immediately after the withdrawal. If taken recklessly, it may quickly spiral into a much bigger debt.

Alternatively, consider payday loans. They still have higher interest rates but have a longer repayment period than a credit cash advance. It’s often expected to be paid back by a borrower’s next payday, hence the name.

Microloans

Microloans can be the best bet for new and small businesses often ineligible for bank loans. They’re small-size loans, ranging from $50,000 to $13,000. Since they’re meant for less-established companies, they often have lower interest rates.

These microloans are often funded by the Small Business Administration (SBA), an independent agency in the United States that supports small businesses. They send these funds to SBA-approved intermediaries called “microlenders.”

Microlenders don’t only help businesses with their business capital. They also have lending, management, and technical assistance expertise, so they often provide companies with training and education.

Crowdfunding

Another way to raise business funds fast is through crowdfunding. As its name implies, a business raises funds, usually through rewards, donations, debt, or equity, from the “crowd,” which can be wealthy individuals, other businesses, or specific organizations. This often only takes a few weeks, which is way faster than traditional funding methods that could take months or even years.

Besides raising solid capital fast, crowdfunding can also help businesses connect directly with the general public. Entrepreneurs and organizations can gauge interest in and test their niche market, launch new business ideas or innovative projects, and then build a loyal following.

Angel-Invested Capital

An angel investor can be an individual or a group of affluent people who invest their personal funds in a company’s early stages to make it a product-market fit. In exchange, they ask for an equity position (the amount of shares or stocks that an investor owns in an organization) within the business.

An angel-invested capital is considered lower risk than a traditional bank loan. For example, a company doesn’t have to repay the angel capital if its business flounders. Additionally, angel investors are business-experienced and accredited, so they sometimes help the companies improve their profitability.

Final Thoughts

The global financial crisis requires every individual and business to reconsider financial goals. If there’s a need to sacrifice, remember that it doesn’t immediately equate to failure but flexibility in a rapidly evolving environment.

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