As an Entrepreneur, building a successful business hinges just as much on your core business idea as it does on your ability to raise enough capital. Obtaining a business loan is challenging but finding a venture capitalist who is interested in your idea, even harder. A personal loan might not be enough to tide you over which leaves you wondering exactly where to turn.
There are different types of funding opportunities available to you as an entrepreneur. Your business and scope of growth will largely determine which funding arena is right for you.
Here is a list of alternative Small Business Fundingoptions to help set you along your path to success,
1. 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 business credit card is perfect for entrepreneurs who work on their own.
Don’t confuse a business credit card with personal credit cards you may already have. I always recommend small business owners and entrepreneurs go through the trouble of establishing a business bank account and then obtain a credit card tied to that account.
2. Venture Capital
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 and know what your business valuation is worth before pitching to an investor. You can now perform business valuations using ILUVTAX.COM‘s online valuation software.
3. 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. Your family and/or friends may be able to help with a direct loan, co-signing a line of credit, or even a gift. 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. You may experience a gap between when your company sells product and when your customers make payments on those sales. Maybe the gap is too big for you to meet your working capital needs to pay creditors, employees, etc. This gap can be closed using factoring. Factoring companies charge a fee which is usually a percentage of the sales invoices you factor, or sell to the factoring company. That percentage can be as high as 15 or 20 percent. But the opportunity cost of not having the cash may be even more costly.
5. Crowdfunding
Websites such as GoFundMe have become popular to help small businesses collect funds from a variety of sources such as individuals, groups and companies. You can offer rewards or a tiny share of your company’s 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. Crowd funding sites usually charge a processing fee for the money raised.
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.
7. State and Federal Agencies
Many state and federal agencies have mandates to support business development and entrepreneurship as part of their mission. The U.S. Small Business Administration (SBA) offers financing options for small business. Their loans can be very beneficial for those that qualify. Here in Washington State, the Washington Economic Development Association and Ignite are two active groups supporting business growth and development.
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