So you want to run a business and, at some point, you understand that your need for funding may be very real, indeed. However, you don’t want to rely on a bank for a loan.
Well, put your worries aside because it’s more than possible to get your funding in other ways. However, there are many predatory funding practices out there that take advantage of those who can’t go to established lenders like banks and even if you’re skipping those channels out of choice, it can be easy to fall prey to them. So, how do you get your business the funding it needs without selling your soul in the process?
Know you’re getting the best deal
If you’re applying for funding of any kind, you should make sure you’re in the best possible position to get the best possible deal. While lending practices may differ, many will use the same criteria that a bank would when looking to offer that funding.
For instance, your credit score can make a huge difference, so work on a line of business credit beyond your own personal score. Similarly, having a business plan, a cash flow projection, and an understanding of how that money is going to be spent and the expected returns can all make your prospects a lot more optimistic.
Scan the market
Nowadays, there are a lot of loan providers besides banks. Those who can’t or won’t turn to banks might believe otherwise, however, and often turn to the loudest and most visible loans available to them. Needless to say, these aren’t always the best options.
For instance, there are Small Business Administration loans available and getting in touch with the SBA can often help you find the partners that follow its guidelines. Alternative lenders are an option often used by those with a credit history that’s less than ideal.
While they do offer quick approval in a lot of circumstances and few restrictions on how you can spend the money, they do bring with them much higher interest rates. In all cases, putting together a plan of how you pay the loan back within your current means before you actually take the loan is crucial to figuring out whether it’s safe or not.
Go to your people
Nowadays, when a business needs funding, it’s becoming more common to seek it directly from the consumers themselves.
Crowdfunding isn’t always the right option for a business. Usually, a product or service has to have an innate marketability that it can convince consumers based solely on the idea and your presentation of it.
The cons of crowdfunding are clear. If you fail to convince enough people to contribute enough funding, you get nothing after a campaign that can often be hard-fought and time-consuming. If you do meet your goals, you are going to reward those contributors, but they have no share in the ownership of the business.
Your guardian angel
If you’re not entirely adverse to the notion of splitting ownership and sharing long-term profits, then investors might be one of the best ways to acquire a large sum of money in a short time.
There are angel groups and online platforms dedicated to helping business owners find them, but finding one is just the first step. Angel investors turn down 90 per cent of applicants, so your approach can’t be lacklustre.
Know your numbers, as in your cash flow projection including profit margin and gross profit. Many angel investors will demand some track record of success in the business to help them weigh its potential, so it’s not the most suitable option for brand new business owners.
Use what you got
There are ways to secure funding and loans without having to rely on the business’s potential, as well. You can also use what you have at that very moment.
For instance, take a look at your net worth. Beyond the cash in the account, all your assets have an innate financial worth. If you’re looking for funding, you can use them as collateral. There are risks associated, such as losing the equipment/vehicle/property you’re taking a loan on.
But those only apply if you can’t pay it back. It’s worth learning about asset-based lending if you want to avoid banks or you don’t want the hassle of jumping through the hoops mentioned in the first point. That’s not to say they’re to be taken lightly. Your assets can help, but successfully applying for a loan is only the first part of the story.
Get the advance
If your needs are short-term, then you may need to look into the money that you’re already owed. Factoring your revenue only applies to businesses that use invoices, but the businesses that use invoices are those most likely to have regular short-term deficits they need to cover. Encouraging fasting invoicing payment through better terms is one solution, but it won’t help in every situation. Learn about invoice factoring, not only how it works but how much you can expect to lose per invoice based on which company you decide to go with, too.
Your wish is granted
The SBA does more than approve lending practices, it also offers grants to small business owners. The criteria for which businesses fit these grants can often be exclusive to only a few, but it’s worth every business owner’s time to see whether or not they qualify. Otherwise, you’re turning the potential for free money.
Granted, that money also often comes with stipulations on how you’re able to spend it. But any costs you’re able to cut in one area means savings and thus more money you can spend without any strings attached. The SBA isn’t the only source of grants and there may be more local, regional, and state options, both state-sponsored and privately arranged, worth checking out.
It’s more than possible to achieve your dream of funding the business without turning to the banks and without getting a terrible deal. The tips above outline your options, now it’s time to do the research.