In the past, small business owners relied heavily on loans from banks to fund their companies. However, nowadays online lending has opened up numerous possibilities for determined entrepreneurs. Here are some creative financing methods you can consider as alternatives to traditional bank loans.
Draw from Your Own Assets
Before you approach outside lenders, consider whether you have personal assets that you can use to finance your business. These may include savings, stocks, vehicles, or valuable collectibles.
Ask Family and Friends
Your family and friends can be a source of creative financing for your business. Keep the funding relationship professional, though, by writing a business plan that delineates how you plan to use the money. You should also clarify, preferably on paper, whether the funds are an outright gift, a loan, or an expectation of equity.
Apply for a Grant
Unlike a loan, you don’t need to repay a small business grant. Grants are offered by private businesses, government agencies, and local organizations. Some grants have specific criteria for eligibility. For instance, they may be exclusively for businesses that are owned by minorities, women, or veterans, but if you qualify, it is a great way to fund your company.
Obtain a Microloan
Microloans are loans for small amounts that your company may need for specific purposes such as equipment repair or strengthening cash flow. The U.S. Small Business Administration has a microloan program for small businesses. Typically the repayment terms are shorter than for larger loans.
Crowdfunding utilizes online platforms such as GoFundMe, Kickstarter, and Indiegogo to obtain funding from a multitude of small investors. If your campaign is successful, you may be able to fully fund your business and attract the interest of numerous backers.
Obtain Financing from Your Vendors
If you need funding to purchase supplies or services, rather than approach a bank for a loan you can go directly to the vendors for financing. Conduct negotiations with the vendors with whom you usually do business and arrive at terms that are mutually beneficial.
Use Invoice Financing
Invoice financing involves exchanging unpaid accounts receivables for the capital you need to run your business. After your application is approved, you immediately receive up to 85 percent of what you are owed. When your clients pay in full, you receive the balance minus a financing fee.
For more advice on methods of creative financing for small businesses, contact WHW Capital.