Guest post by Eddie Segal.
Obtaining small business funding with traditional lenders is generally not a walk in the park. Unproven entrepreneurs generally have difficulty getting funding from commercial lenders like banks and credit lines. Challenges associated with down payments and collateral can limit their access to seller financing and traditional funding mechanisms.
Nevertheless, a lack of traditional financing options doesn’t mean you should give up on your dreams of starting and owning your own small business. Here’s a look at seven non-traditional ways to finance your small business.
Reasons to Choose Alternative Small Business Funding
You can secure relatively small amounts of capital using alternative non-traditional financing strategies, methods within the realm of lending and investing that can allow you to focus on other aspects of your business.
While it is true that most people think of these financing options as a business owner’s last resort, that is not always the case. Several factors may cause you to consider alternative financing for your business. Here are a few of those reasons.
- Your loan applications were denied: by banks, investors, and credit lines
- Your Business Credit Score Is Low: if your credit score isn’t good enough, you may be rejected for a business loan by traditional lenders
- Alternative funding is usually faster: and has a higher approval rate than conventional funding
- You are creative and willing to take risks: the rewards can be greater than the risks
It’s crucial to understand what you are getting into before you decide to accept alternative funding. Here are several things you need to know about the most popular forms of alternative financing.
Non-Traditional Ways to Finance Your Small Business
As a business owner, you have more ways to finance your business than ever before—and incidentally, many of them do not require waiting for a bank or gathering paperwork. Although you may be applying for conventional financing options, you may still wish to consider non-traditional sources of funds. Here are some non-traditional ways to finance your small business:
Microloans are just a smaller version of a conventional loan from a bank. There are many options and opportunities for small businesses to apply for microloans between $5,000 and $50,000 from banks and other lenders. According to the Small Business Association (SBA), microloans are a common source of financing for small businesses.
You can more easily pay them off. If you need a few thousand dollars to invest in a piece of equipment or business software, for example, this is a great option.
2. Merchant Cash Services
You can apply for merchant cash advances if you accept credit card payments for your business. A private lender will likely pre-approve you for a loan if a portion of your daily credit card income is made up of the income you receive during slow business periods. Then, you will receive a payment based on the number of credit card transactions you make during a short time.
One of the alternatives that is growing in popularity is equity crowdfunding, whereby you can raise money for your business by selling a small stake in it. It has the advantage of being an inexpensive method of financing new ideas.
There are also the inherent marketing advantages associated with the online process of soliciting investors. These two elements are essential to both raising money and spreading awareness about your business.
4. Peer-to-Peer Lending (P2P Lending)
It’s common for P2P lending to move much faster than traditional lending, so you can usually close your investment within three days if you choose. Although there is a lot of bureaucracy in the government, it is not wholly so. They use third-party platforms to validate your credit score.
Peer-to-peer lending is a great investment channel for both businesses and investors. They are less volatile than the stock market, and they are more likely to generate higher returns than a stock market investment. Besides, eliminating bank fees directly impacts the financing terms offered to entrepreneurs.
5. Working Capital Loans
The business world is a continual cycle of businesses hitting peak and times and low spots—and seasonal companies, in particular, may require assistance to cover operating expenses (such as salaries and rent) during lean periods.
Working capital loans are short-term loans provided by banks and other lending institutions that will help you through the tough times when you are using cash faster than you are earning it.
Though technically this isn’t funding, it would be remiss of us to neglect to mention it. Bootstrapping refers to a company that directly gets funds from the owner (financial or otherwise).
The truth is, no matter how long you have been saving for your startup fund or how part-time you have been building your business, most startups could benefit from a certain amount of “pulling themselves up by their bootstraps.”
7. Grants from the Government
There are a plethora of grants available at the federal, state, and local levels. Businesses rarely receive government grants for starting up. Most of the concessions awarded by the federal and state governments go to non-profits in the country.
However, grants are available to help female entrepreneurs start their own companies. Additionally, business owners of ethnically diverse backgrounds are also eligible for assistance. Make sure to research all of the different options that are available to you before making a decision!
Finance Your Small Business Today
There are numerous reasons why starting a small business is a good idea in these difficult times. If you are ready to be an entrepreneur, there’s no need to limit your thinking to traditional means of financing your small business.
Today, you don’t have to go to a bank and speak to a manager about obtaining a loan. It’s becoming more popular for small businesses to take advantage of non-traditional financing options. All you need is some knowledge about how and where to find them.
Hopefully, your small business financing needs can be met using one or a combination of these seven non-traditional funding sources.
Eddie Segal is an experienced web analytics specialist and technology writer. In his writing, He covers subjects ranging from finance, cloud computing to agile development to cybersecurity and deep learning. He also specializes in SEO, link building, and content strategies for technology brands. Eddie also contributes to a number of blogs like DZone, Dataversity, and IBM.