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Due to the holidays, all Dayton Metro Library locations will be closed on: Wednesday, Dec. 24, Thursday, Dec. 25, Wednesday, Dec. 31 and Thursday, January 1st.

What about those ads for lenders who say they are better than banks?

Loan Application ImageYou may have seen or heard advertisements from firms suggesting you try their company if you are “fed up” with trying to borrow money for your small business from banks.  Watching a football game recently I saw an ad that threw around numbers like “loans from $50,000 to $10 Million” and phrases like “our simplified application procedures” etc. In the library I’ve been asked more than once whether these companies are legitimate.  I can’t answer a simple yes or no for all companies but broadly the answer is that many of them are very legit. These businesses comprise an industry that has come to be known as alternative lending and they are playing an increasingly large roll in the business funding arena.  The trick is in knowing how they work and knowing whether they area appropriate for you.

As a rule, none of these firms is going to loan you money to start a business.  Alternative lenders are interested in lending to existing small businesses that can demonstrate positive cash flow.  A loan Broker--Ami Kassar--who writes for the New York Times Small Business Blog said

These lenders are extremely entrepreneurial and are leaving the banks behind with their speed and use of technology. Many are backed by premier investment banks and Silicon Valley venture capital powerhouses — investors who understand that entrepreneurs and small-business owners are throwing up their hands in frustration over how long it can take to get a loan from a bank, especially if the loan is backed by the S.B.A. More and more businesses are willing to pay the price of the alternative lenders just to be able to get their capital and move on.

That price can be pretty high though, and in some cases an alternative lender might want access to your bank accounts to take their loan payments out automatically on a regular—perhaps even daily—basis.  Here are some links if you’d like to learn more:

A trip to the bank or the keyboard?

Traditional financing methods for small business and startups continue to be a hard nut to crack.

Here's an informative study from an analyst at the Cleveland Fed and a scholar at Case Western  about the sluggish small business lending environment. For startups the financial situation is even more challenging, bank loans are often not available at all, which is my more and more startups—especially the ones that plan to make a product—are turning to crowdfunding campaigns.

You’ll find a lot of information about the process at Entrepreneur Magazines site.

Keep in mind that most crowdfunding arrangements are not equity based, in other words you are not asking people to invest in your company and expect a continued return.  Usually some sort of good or service is exchanged if the goal is met, ranging from a handwritten thank you note, to swag like a company logo t-shirt, up to receiving one of the products the company will offer.  The Pebble watch is a famous example.

New rules for Equity Crowdfunding were recently released by the U.S. Securities and Exchange Commission, but this is a much more complicated process.

If you’d like to learn more about the background and basics of crowdfunding in more detail, these books from  our collection may be helpful:



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