Related: Seeking Capital Online Instead of From a Bank May Be Your Startup's Best Option
Data provided by the Office of Advocacy reveals that in 2013, over 5.4 million loans were approved for small businesses. Borrowing amounted to about $1 trillion -- including $585 billion in outstanding business loans and $422 billion in credit from finance companies, with the rest from a mix of sources.
The increased demand for quick and easy access to working capital has sparked fierce competition among lenders to provide alternative lending options that meet the needs of small businesses; however, the type of financing they require will vary depending on the industry and stage of the business.
Here are four principal reasons that small businesses need to borrow money and some alternative lending options available for each:
1. Starting a Business
The average cost to start a business can range anywhere from a few thousand dollars to over $30,000, depending on the nature of your business. It is often difficult to get approved for a loan because most lenders want to see a track record of success and profit.If you’re starting a business and need start-up capital, first figure out how much you need. Use Entrepreneur.com's Starting Cost Calculator, which will help you itemize all the costs you’ll incur as you start your business. Then, look into raising the necessary funds. If securing a bank loan isn’t possible, consider reaching out to your immediate network of family and friends to raise the initial seed money, or use crowd-funding sites such as GoFundMe, TrustLeaf and IndieGoGo.
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