DK FINANCIAL SERVICES
Small Business Consultants - P. O. Box 862, Waldorf, Md. 20601
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Alternative Sources of Capital for a Small Business
Author: Morris A. Iles, Financial Consultant
Borrowing from banks for a small business enterprise can be very challenging. Bank loan
applications may be denied for a variety of reasons including: lack of assets, insufficient
collateral, loan guaranty resources and business experience. However, there are several
common types of alternative sources of capital available to small companies.
Savings and Investments
The first source of consideration is your own savings and investments. Third party
finance sources will consider your personal investment risk and your ability to fund
personal expenses while the business is in a growth stage toward business sufficiency.
Angel investors are wealthy individuals who invest capital for a business start-up, usually
in exchange for ownership equity. These individuals are looking for a higher rate of
return than would be given by more traditional investments (typically 25% or more).
Angel investors are an excellent source of early stage financing for high-growth potential
enterprises. They are often willing to tread where there is too much risk for banks and not
enough profit potential for venture capitalists.
Peer to Peer Lending
Peer-to-peer lending is a means by which borrowers and lenders may transact business
without the traditional intermediaries, such as banks. It can also be known as social
Lending or ordinary people lending money. The process may include other intermediaries
who package and resell the loans, but the loans are ultimately sold to individuals or pools
An enabling technology for peer-to-peer lending has been the internet, which connects
borrowers with lenders. One internet resource example can be viewed at the web site
known as Prosper.com.
Instead of a bank loan, borrow smaller sums from several family members