Having a small business can be one of the most rewarding and frustrating experiences anyone can go through. The thought of being you’re own boss may sound awesome, but like most things in life, it has it’s downsides too. One of the biggest challenges facing small business owners today concerns acquiring the capital needed to support their business’s growth. Many small business owners have a hard time being approved for funding for a number of reasons. While cash flow issues and shaky business plans are among the biggest reasons, changes in the lending priorities of banks have also made it more difficult for business owners to get the funding they need. Fortunately, there are many alternative financing options that business owners could turn to when business loans aren’t an option. Here are a few ways businesses could raise some working capital without going to a bank.
This type of funding allows applicants to seek financial assistance from people online. In a P2P system, borrowers connect with a network of lenders who would directly fund their business under certain terms. Borrowers would have to go through an application process that would match them with other potential lenders. After they choose a lender, they will then receive the borrowing amount in their bank account. From there, borrowers make monthly payments that are based on the agreed-upon terms with interests. Since there are so many platforms applicants can choose from, finding the right one can be a little overwhelming. Some of the most popular examples of P2P lending websites geared towards small to medium-sized businesses include FundingCircle, LendingClub, and StreetShares.
Family & Friends
Many people would turn to those they know if they’re in need of capital for their business. The best part about this option is the fact that you won’t have to worry about borrowing from strangers. Borrowing from family and friends also shows investors that you are very confident about your business’s future. The biggest drawback to this option is, of course, the limitations on how much you can actually borrow. What’s more, mixing money issues with your family and friends can also threaten the relationships you have with them. To get someone you know who is financially stable and willing to invest in your requires a lot of trusts. If you intend to borrow money to support your business from a friend or a family member in the future, plan ahead. Sometimes when things don’t fall into place you may lose more than just money.
These types of investors are in the business of funding new business ventures and ideas. Angel investors are intelligent and very wealthy individuals who are very thorough at turning an entrepreneur’s business dreams into reality. They invest in promising entrepreneurial businesses in exchange for stocks in those companies. Without them, some of today’s largest companies like Google might not have been successful as they are now. Angel investors are huge risk takers which is why many of them form groups to spread the risk. You can reach out to them by either contacting local angel investment groups or your local chamber of commerce. All angel investors must first meet the definitions of an accredited investor set by the Securities and Exchange Commission. While there is no definite number, experts estimated that there are around 300,000 angel investors active in the U.S.
When it comes to funding options, very few could compete with the benefits that business grants can offer. Unlike loans, business grants allow applicants to receive free money used for the purpose of growing their business. Other perks include diverse funding options for different types of business owners and increased confidence from investors and banks in your business. Business grants do come with catches such as long applications, spending restrictions, and strict eligibility standards. While applying for a grant can be rough, it is still considered one of the most feasible funding options available. If you’re looking for a grant that’s right for your business, you can check out this article from LendEDU, over here.
Merchant Cash Advance
One of the lesser-known alternative financing options on this list, merchant cash advances comes with most of the typical benefits of a business loan minus the need for collateral or good credit. It is the purchase of future receivables which allows MCA providers to receive payments through a business’s credit sales. This means that a portion of the sales revenue generated from the business goes back to the MCA provider. Though similar, MCA’s are not loans as they don’t charge interest rates. Instead, MCAs use factor rates that adjust to the number of sales a business generates. While they too have their own disadvantages, MCA’s are relatively easy to get and most applicants can get funded within days after applying. MCA’s, however, are not regulated like business loans are so anyone planning to get them must head with caution.
These are some of the best alternative financing choices business owners could look into when bank loans aren’t available. While there are many alternative financing options to choose from, finding the right one for your business needs isn’t always easy. Other types of business funding options that weren’t previously discussed can be found in this article. If you’re a small business that’s been in operation for at least 6 months and needs working capital, you can visit us at Smart Business Funding and complete our application form here.