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Alternative business funding on the rise

October 15, 2014 by @guidant

Entrepreneurs looking to secure small business loans will have to be resourceful and think out of the box in order to get a good rate, according to Fox Business.

Because getting business loans at a fair price is projected to continue to be a struggle for small enterprises, experts predict that 2012 will see the continued rise of alternative sources of funding.

The alternative umbrella covers a host of business financing options, ranging from companies that help entrepreneurs roll over their retirement savings to invest into new endeavors to crowdfunding sites that encourage large pools of investors to contribute small amounts of money.

New York-based Kickstarter, which is arguably the most well-known crowdfunding site, has seen more than $125 million worth of pledges since it was founded less than three years ago, according to a company spokesman cited by the news source. A main draw of the site is that it operates on an “all or nothing” principle. This means that if a project doesn’t meet its financial goals, contributions are never taken out of investors’ accounts.

Companies that help entrepreneurs utilize retirement funds to finance a business or franchise before retirement age without tax or early distribution penalties have also become more popular over the past few years, according to the media outlet. For instance, business partners Linda Jamerson and Ken McDonald set up a new retirement plan through Guidant Financial after their attempts to secure business funding through more traditional sources fell flat.

“Nobody was going to give us the money so that we could get in,” Jamerson told the news source.

In the first year after the couple took over an aluminum case manufacturing company using funds from their restructured retirement accounts, the business’ sales grew 60 percent.

Crain’s New York Business cites figures from a July 2011 study by the National Small Business Association which support the idea that many entrepreneurs are struggling to obtain financing through traditional channels. Just 36 percent of businesses surveyed in July said they were able to secure the funding they needed, compared to more than three-quarters (78 percent) in August 2008.

“Alternative lending is really gaining ground, and (lenders) are evolving to meet the better credit risk that’s now coming their way,” Marilyn Landis, president of outsourced CEO firm Basic Business Concepts, told the news source.