3 Situations Alternative Financing is Perfect For
Seeking financing from traditional lenders is great, if you can get it.
That’s one of the ultimate purposes of places like banks, where you could potentially borrow some or all of what you need for things like a home or business.
Unfortunately, banks will often stay away from risky industries, or applicants without much equity or a weak history. This encourages those with big dreams to look elsewhere for alternative financing. Rates, terms, down payments and available products may be different than those from traditional lenders, but they also might be more appealing to someone who can benefit from alternative financing.
Some circumstances where this type of lending can be found include:
Early stage funding
If your enterprise is new and doesn’t have a lot of revenue coming in or equity built up, but you expect both areas to grow as the company grows, consider seeking a product like a convertible note. As time goes by, the note fully converts into equity. This can be at a certain maturity date, a financing action or even when the company sells. Owners pay interest and can pay different rates based on maturity dates. These notes can be good for early investors who don’t mind waiting things out, especially if things improve.
Investors may also prefer a Simple Agreement for Future Equity, a product that also converts into equity at certain scheduled times but doesn’t have an interest rate or date of maturity. So it also can be appealing to longer-term investors, and to the company that won’t feel pressured to hit a certain performance during a certain amount of time.
Every situation is different but a convertible note can likely have different maturity dates. If an investor is fine with waiting for an unknown quantity of time, consider a SAFE. Or if they want more assurance of a payoff with a certain date, consider a convertible note for alternative financing. Terms also might be staggered based on comfort level.
For more information about financing options, contact Commercial Capital Lending.