New car? College fees? House move? Whatever your big expense is, here are some less traditional ways of financing your dreams.
There are many times throughout our lives when we might need to take out a loan. Not just when we buy a house or car, but when we have renovations done in our homes. When we convert our loft, when we decide upon debt consolidation, and even when we must pay for private school tuition. Not all of us are eligible for loans, however. So, we thought we would review other ways that you can get financing for your dreams.
Why use alternative financing?
Alternative financing is a method of raising capital which falls outside of the traditional techniques. There are lots of examples of it, but peer to peer lending and crowdfunding are two modern approaches. We will go into these in more detail momentarily.
First, let us talk about why someone might need to use alternative methods of finance. People are turned down for loans all the time because of poor credit. Your credit score takes a long time to raise, and it may be that you need money faster than the time that it would take for you to become eligible for that bank loan.
Some people do not work and do not have any method of repaying a loan and will therefore never be eligible. In this instance it is quite common to borrow money from someone in your family or a friend. Which is an example of peer to peer lending.
Then there are those that use alternative financing because they realise that these sources of capital can work out cheaper than a normal loan. Let us review some of the methods that they may pick.
Examples of alternative finance sources
If you live in the UK and you would like to investigate alternative source finance, here are some sources to consider.
Up until recently, the HELOC was only available to an American or Canadian audience. The HELOC is an alternative to a second mortgage which would allow you to unlock some of the equity within your home. This has the potential to raise 80% capital of your home’s worth. It is only available to homeowners, but if you want to read more about it, see the Selina Advance webpage.
Crowdfunding works best when you have a project that captures hearts and minds. This is a method of community financing where everyone contributes a donation to help the cause. Crowdfunding is not going to work for your new home renovation, but if you are trying to save an animal through paying its vet fee, or if you are trying to send impoverished children to school, then you have a stronger chance of successfully raising funds here.
Angel Investment is best used in a corporate sense. If you have a new business start-up that you want to raise capital for, angel investment is a clever idea – if you can find an investor. The best way to find an investor in your field is to network as much as possible.
There are many other corporate ways to raise alternative sources of finance. These include invoice financing, asset finance, and venture capital.
Peer to peer lending
Finally, if you have a rich relative, it is often cheaper to borrow from them than it is to borrow from a bank. The money that a peer lends you is tax deductible for them. However, if they charge you interest on it, they will have to pay tax on that interest. Nevertheless, it is cheaper for you, and they might be able to make a small profit from it.