Five Useful Alternatives to Bank Lending
Hardly anyone is born rich or ends up inheriting enough money to be financially wealthy from the point in time they graduate high school. As a result, most people will at least fall victim to hard times at least once in their lifetime, which will result in them needing to borrow money. However, borrowing money can be difficult for people while they are in a financial jam because oftentimes they are not in a position to where they have any funds to use as a down payment. In addition, those in this position also may have some blemishes on their credit report, which can cause a traditional bank loan to be denied altogether. Whether someone is seeking a personal loan to get them through or a loan to keep their business open or start a new one, we have compiled a list of various types of loans, which can help practically anyone.
A payday loan, which is sometimes also referred to as a cash advance is one option individuals who are in a financial jam, and those who have below-average credit scores have access to. The nice thing about payday loans is that the financing can typically be secured much faster than with ordinary bank loans. The reason for this is that they still run the applicant’s credit score, but they do not pay as much attention to it as an ordinary bank would. This type of loan is one that should only be used when people have no other means of acquiring financing as the interest rates have exceed 300%. However, a 36% interest rate cap has been placed on ballots for the 2012 election year.
If people cannot obtain bank lending, and/or they do not want to go the payday loan route, another option they have is a peer-to-peer loan. With this type of loan, they have a couple of options. The first option is to simply ask their friends or family to loan them some money. The other option is to find an individual who loans money as a division of their investment portfolio. Depending on how long the loan’s period is, personal lenders will need to charge anywhere from .22% to 2.4% in interest on an annual basis.
If people are in a financial jam, selling or pawning some of their valuables to a pawn store is another option they have. However, people should keep in mind that if they sell some stuff to a pawn store, the store will not give them the full value because they still have to make a profit. By pawning belongings, people can essentially receive a loan by using their valuable as collateral. If they make their payment along with the 10 to 20% interest rate for the two weeks of the loan, they will get their item back.
Buy-Here, Pay-Here and Rent-to-Own
Many car lots and stores that sell appliances and other expensive electronics operate on a buy-here, pay here or a rent-to-own basis. With buy-here, pay-here, the business will loan the money to the individual, and the individual will make their payments by bringing cash or a check to the business. Rent-to-own businesses operate under a very similar manner, but the difference is that people can terminate the contract early if they decide they do not want to own the product in the end. It is not uncommon for both types of loans to have interest rates in the 30% range.
The Small Business Association, which is commonly referred to as the SBA also offers loans to small business owners who cannot get a bank loan. SBA loan interest rates are based upon which specific SBA loan the business receives, and what the current bank rates are. The good thing about these loans is the fact that the lender is a little more open to lending money in riskier situations, such as starting or expanding a business. In today’s economy, it is nearly impossible to receive a loan for a small business through any bank because banks have been hit pretty hard in the repossession, and they cannot afford to have to short-sell any more properties.
There are also numerous investor programs business owners can go to for help. One that has worked wonders for many business owners is a program called KickStarter. The beauty behind this program is that business owners get their own page on a website, and they can post some information about what they plan to do with the money they raise. They get to determine how much they want to raise. KickStarter takes 5% of the amount investors pledge, and the payments are transferred through PayPal, which charges an additional 3 to 5% in interests. The good news is that after those fees, a total of 10% in the worst case scenario, the business will be able to use the remaining funding, and they never have to pay investors another penny.