It’s a daunting task to finance a small business and to be successful along the way. The competition is fierce and not every business has tons of money to spend either. Therefore, it does not come as a surprise that the lack of capital is one of the main reasons why startups go under. However, getting turned down for a loan doesn’t mean the end for your business. It is time to size up other options and the full range of possibilities: Strive to look beyond bank loans and tap into these seven alternative sources of funding.
Venture capitalists have been around for some time and helped numerous startups overcome growing pains. They typically work with businesses that hold great promise, but also involve a high risk. Hence, this strategy is most suitable for fast-growing companies that have an exit strategy prepared. It is not uncommon for these businesses to raise millions of dollars and then transform into booming corporations. Venture capitalists also tend to provide sound advice to owners as well as industry-specific insights.
Working with angel investors can also be a sound option. These investors are looking to pump money into early-stage enterprises and get between a 20 to 25 percent return on their investment. Some of the most prominent companies today, like Google, have managed to get operations off the ground with the help of angel investors. Another benefit, aside from financial means, is that these people bring strategic prowess and industry experience to the table.
In recent years, online lending has changed the game by establishing itself as a great alternative to conventional financing. There is a variety of platforms where business owners can go through a swift application process and receive funds in a matter of days. The ease and quickness are great advantages over traditional lending. Also, note that there is a multitude of different models of funding you can find online, from micro-loans to peer-to-peer lending.
The most exciting change comes in the form of crowdfunding. With the rise of the internet platforms such as Kickstarter, we are witnessing a whole new ballgame for investments. Instead of seeking a single investor, small businesses are able to pool money from a number of different people. Our best advice is to find a like-minded crowd that feels passionate about your mission, values, and offerings and read the fine print to know exactly what you are signing up for.
Small business loans
It should be mentioned that alternatives to finance does not always mean that they are better. Old school methods of lending are still alive and kicking. Hence, it might be a good idea to rely on trusted companies like OnDeck that are leaders in small business financing and have a rock-solid portfolio. This could also be a way to tap into strategic partnerships and find great business advisors. There are no silver bullets for problems in the financing department, so always do the homework to figure out the best solution.
Factoring and invoice advancing
Waiting for customers to pay for outstanding invoices can really put a strain on a budget. But, small businesses have an ace up their sleeve. Basically, factoring refers to the process of service provider sending you the money on invoices that have been billed out. You pay back the same amount once the customers pay you and settle their bills, which is a nice way to stay afloat and patch up holes in your cash flow. Closing the pay gap also enables businesses to take on new projects and continue expansion endeavors.
Staying ahead of the game
Every startup needs capital in order to finance its daily operations, product development, employee payroll, or some other business aspect. Traditional techniques still bring results, but banks are, as it turns out, one of the least likely benefactors for startups. Then again, you should know that alternative investors are not some do-gooders ready to spend money like there is no tomorrow. Some of them like to keep businesses on a short leash and their primary goal is to recover their investment. So, weigh your options carefully before taking a plunge.
Dan Miller is a Payments officer with nearly ten years of experience in banking and international payments in the Australian banking sector. He has a Master’s Degree in finance and banking. He is married and also a father of a beautiful little girl. Connect with him on Facebook and Twitter.