6 Alternative Ways to Finance a Small Business
As an Entrepreneur in a rural community, building a successful business hinges just as much on your core business idea as it does on who you know and your ability to raise enough capital. Obtaining a business loan is challenging but so is finding a venture capitalist in rural Iowa who is interested in your idea. A personal loan might not be enough to tide you over, which leaves you wondering exactly where to turn.
There are different types of findings available to you as an entrepreneur. Your business and scope of growth will largely determine on which funding arena is right for you.
Here is a list of alternative Small Business Funding options to help set you along your path to success.
1. Using Credit Cards
Business credit cards can be a quick and easy way to finance a start-up. You can use the card to start off your business and make the minimum monthly payments which are generally low and hence affordable. It also provides a sense of certainty as you can fix the payments every month and plan your budget accordingly. However, the spending needs to be within the credit limit and late payments should be avoided as they attract hefty interest charges. A credit card is perfect for a small business or entrepreneurs who work on their own.
2. Approaching Venture Capitalists
This path is for businesses that have grown beyond being just a start-up and are looking for aggressive growth options. Venture capitalists can pump in the valuable capital needed in these situations. You will definitely need to undertake & know what your Business Valuation is worth before pitching to an investor. You can now perform business valuations using BizEquity's valuation software for free.
3. Borrow Money From Family And Friends
Your family and friends can come to the rescue when you have an urgent need for money for your new or growing business. It is better to develop a formal business plan along with projections before approaching them as this will give them a sense of security. The type of financing needs to be specified before you receive the funds; whether you are trading equity for funding or simply taking a loan with interest, clarity is key.
4. Factoring
This is a process by which a company sells its receivables at a discount to get some cash quickly. There can be a gap between a company receiving its dues from customers and making payments for its working capital like creditors, employees, etc. This gap can be closed using factoring. For this, companies are charged with a fee which is usually a percentage of the total amount advanced.
5. Crowdfunding
There are a number of websites that help small businesses collect funds from varied sources which is usually a mix of individuals and companies. Companies can offer rewards or a tiny share of their equity in exchange for the funds raised. Before choosing a crowd funding platform, make sure that you read the contract along with the terms and conditions to avoid any surprises. There is usually a processing fee charged for the money raised on such sites.
6. P2P Lending
Peer to peer (P2P) lending is similar to crowdsourcing in the sense that a firm essentially borrows from unrelated individuals or “peers” without going through a traditional financial intermediary. P2P Loans for business are usually secured loans. The interest rates are usually set by the lenders in a reverse auction model. These factors make P2P loans a great way to garner short term financial assistance when needed.
