Nontraditional Ways to Find Funding When Banks Won't Help

A woman approached me a few weeks ago with a question about how to get approved for a credit card with a subprime credit score. This woman, we'll call her Allie, had a short-term cash flow problem. She'd soon earn income working for a volunteer organization, but she needed $1,500 to relocate for her new job. The program did cover the costs of the move, but it wouldn't cut her a check until after she arrived. Allie was struggling to scrape together the money for her move and couldn't get approved for a credit card or a personal loan due to her low credit score and high debt-to-income ratio resulting from student loans.

After several emails back and forth, and a strong recommendation not to take out a payday loan, Allie finally took matters into her own hands by creating a fundraising campaign online.

The Struggle of Being Subprime

Allie's story is not uncommon. Millions of Americans are subprime, underbanked or unbanked. Due to a variety of circumstances, these Americans are unable to rely on traditional banks to meet their financial needs. This forces many people into payday loans, title loans or a myriad of other predatory financial services with horrifically high fees and interest rates.

Allie's strategy, however, is the new version of a bake sale, car wash or phonathon. Instead of just raising money in a community, people can now reach strangers across the country or around the world through crowdfunding on the Internet.

Crowdfunding websites have grown exponentially in recent years. The sites do everything from helping newlyweds (somewhat awkwardly) ask guests to help pay for their honeymoons to providing entrepreneurs without access to venture capitalists an avenue to ask for seed money. They even provide college students a way to ask strangers to help pay tuition.

Each crowdfunding site operates with a unique set of rules. Some allow for charitable cases -- like Allie's -- while others, like Kickstarter, are strictly for funding a passion project or tangible creation. If you ever find yourself in Allie's situation, here are few crowdfunding options.

Crowdfunding for Anyone: GoFundMe

GoFundMe allows users to fundraise for just about anything. The campaign can be for a charitable cause, business, family member, pet, education costs or even events. There are no caps on how long a campaign can run.

The success of a GoFundMe campaign focuses on leveraging a person's social networking community to not only raise funds, but also share the campaign with others. While it's possible complete strangers would happen upon a campaign and fund it, it's more likely the campaign starter's friends and family will chip in. This is why GoFundMe can be connected to Facebook, Twitter and email to make it easier for people to share campaigns with their networks.

This doesn't come without a cost. GoFundMe isn't a nonprofit and does seek to earn money off the campaigns. In the U.S., GoFundMe charges 5 percent per donation. There is an additional merchant fee with WePay of 2.9 percent + 30 cents per donation. There are no penalties for missing a goal, so if a campaign starter requests $5,000 but only earns $3,000 -- he or she could still cash out.

Short-Term Financial Assistance: ModestNeeds.org

For those who feel uncomfortable with setting up their own crowdfunding profile, ModestNeeds.org provides an alternative.

Modest Needs is a nonprofit that offers financial assistance to people in need. Applicants register online and fill out a grant application.

The organization focuses on helping those working and living just above the poverty level who are ineligible for most types of social assistance, but are still just one or two paychecks away from financial disaster that could lead to homelessness. All the financial assistance is offered in the form of grants, not loans. The only string attached is that recipients must be willing to share their stories on the Modest Needs website.

Modest Needs will not provide funding for the following:

-- Expenses that cannot be paid without sending cash or a gift card directly to the applicant.

-- Expenses for credit card debt or luxury items.

-- Expenses the organization cannot pay for under the law, such as tax payments, overdue child support payments or parking tickets.

Unlike with GoFundMe, applications on Modest Needs need to be fully funded in order for recipients to access the money.

The Ultimate Goal: Access Banking Products

Crowdsourcing works for a short-term bind, but ultimately, Allie's goal and the goal for people in similar situations is to rehabilitate credit scores and pay down debt to gain access to more traditional funding. Traditional funding doesn't always mean going to the big banks either; it can be getting approved for a personal loan from a startup like SoFi or Earnest or opening a credit card without monthly or annual fees.

Erin Lowry writes about personal finance and serves as the content director for MagnifyMoney.com, a site dedicated to helping consumers save money by finding simple and transparent financial products. She is also the founder of the personal finance blog Broke Millennial.