Small business owners and entrepreneurs constantly face challenges in funding their businesses. Banks and other financial institutes give loans to small businesses after scrutinizing one’s credit report, projection analysis, equity-to-debt ratio, and management skills.
This process is time-consuming and exhausting for the entrepreneur; moreover, it might take months before they get a go-ahead to start the business.
There are a few alternatives that entrepreneurs can explore for funding their small businesses:
1. Personal Loans:
If you’ve managed to build a good credit profile and have a fixed source of income, you may be eligible for personal loans from online lenders. These loans are commonly known as microloans. You can get quick personal loans for small businesses without any collateral or credit check. You shouldn’t use your primary source of income as the basis for getting a loan, since it might lead to rejection.
Submit an online application along with your bank statements, employment information, and monthly income/expense reports to qualify for a loan. The process is speedy, and you’ll get the money in your account within 24 hours of approval.
You can also opt for personal loans from banks or financial institutions if you don’t have any collateral to offer security against the loan amount. It’s an easy process, and several websites provide a list of personal finance companies that help you find the best available option based on your location.
Crowdfunding is a process where a large number of people contribute small amounts of money to support a project or venture. This form of funding is becoming popular with small businesses as it helps them raise capital without giving up any equity in the company.
There are several crowdfunding platforms available which entrepreneurs can use to attract potential investors.
The most popular crowdfunding platforms are Kickstarter, Indiegogo, and GoFundMe. Make sure you read the terms and conditions of each forum before starting your campaign. You’ll need to have a well-defined goal, a good video pitch, and an attractive rewards system for contributors to be successful.
3. Peer-to-peer Lending:
In peer-to-peer lending, the borrower’s creditworthiness is determined by an online system that matches them with potential lenders. You can apply for loans from several leading P2P players such as Prosper and Lending Club. In this form of funding, there is no need to give any equity in the business. The average loan amount for small businesses through these platforms ranges from $7000-9000, and it takes around a week to get a go-ahead after submitting your application.
This method helps you raise funds for your business without involving banks and other financial institutions. There are different peer-to-peer lenders available in the market today, such as Lending Club, Prosper. You can apply for a loan as an individual or as a small business owner with these websites, and there is no credit check involved.
4. Merchant Cash Advance:
A merchant cash advance is a type of funding that helps you get the money you need without waiting for your receivables to be paid. It’s an easy and hassle-free alternative to traditional bank loans.
It’s similar to invoice factoring, but it doesn’t require you to provide invoices detailing customer name, the amount due, etc. This is a quick and straightforward process to get funds to run your business.
There are different merchant cash advances, such as Quick Capital Merchant Services and Kabbage. You can apply online and get an instant approval for your business.
The lender will give you a lump sum amount in exchange for a percentage of your future credit/debit card sales made through the company. This strategy is great when you need quick capital for your business without putting up any collateral or credit check.
5. Angel Investors:
Angel investors invest their own money in exchange for a share in the company. They are usually wealthy business people or entrepreneurs who want to support young businesses. To attract angel investors, you’ll need to have a well-defined business plan, a great team, and a lot of traction.
The best way to find angel investors is through online platforms such as AngelList and Gust. You can also go through your network and connect with potential investors. You must research the different angel investors before pitching them your idea. This will help you build better relationships with them and increase your funding chances.
6. Bootstrapping/Bootleg funding:
Bootleg funding is another term used for crowdfunding, where the entrepreneur uses personal contacts and networks to raise money for their venture. Bootstrapping is a term used for self-funding your business. This means that you use your funds to finance your business operations.
You can also get help from friends and family to support your small business. It’s been successful for those entrepreneurs who’ve managed to generate revenue within six months of starting their venture. Bootstrapping is not easy, and it involves a lot of hard work, but it’s a very effective way to raise money for your business.
7. Government Grants:
The government offers several grants for small businesses. You can get help from the government to start or expand your business. The Small Business Administration (SBA) is a US government agency that provides grants and loans to small businesses. Depending on your location, you can also get help from state and local governments. It’s advisable to research the different grants available and see if you are eligible for any of them.
Governments worldwide award millions of dollars every year to small businesses through grants. The money can be used for various purposes such as buying equipment, marketing, research, and development.
The best part is that there are no strings attached to government grants, and you don’t have to pay the money back. You have to fulfill the eligibility criteria and apply for the assignment before the deadline.
Each of these options has its benefits and drawbacks that should be weighed before deciding. For example, grants from government or private institutions might not require repayment, but the application process is often competitive and time-consuming. The important thing is to do one’s homework, research the options available, and then make a well-informed decision. Small businesses will undoubtedly benefit in the long run.