When a business receives a profit, some or all of that profit can be redirected into the business. This enables the business to continue to grow. Sometimes, businesses will require additional financing from a reputable lender. Many business owners rely on banks to secure financing. However, banks aren’t the only financing solution available to business owners. This is when alternative funding happens.
Alternative funding is about gaining financing for your organization apart from the traditional bank loans to find capital. Many of these alternative sources come from online, and you may think of pursuing this funding route if you have poor credit, have been turned down for loans in the past, or are unsure of how much funding you really need for your business.
With that thought, let’s dive into talk about alternative finances other than traditional bank loans.
-
Working capital loan
A loan that is used to fund a business’s major operations is a working capital loan. Everyday operations can cause financial constraints if a company doesn’t have the funds to sustain them. This frequently happens with seasonal businesses that are subject to cyclical sales. Still, organizations from various industries can fall short of working capital at some point during their history.
A working capital loan isn’t a particular loan type, but it’s like a category of loans. Any kind of loan that supports businesses to meet their short-term operational objectives could be considered a working capital loan.
-
Advisory
This kind of financial service assists both organizations and people with a variety of tasks.
Financial advisors can conduct due diligence on investments, present valuation services for businesses, assist in real estate endeavors, and more. In any case, advisors allow you to guide people in the proper direction when you make financial decisions.
-
Grants
A grant is financial assistance offered by the state, federal, or local government. It’s a specific amount of money offered to an applicant who presents a promising chance of success.
Because grants are money being presented instead of simply borrowed, they’re a lot more competitive to receive. While they are tough to obtain and often require specific circumstances, grants are incredibly valuable. If you’re looking for a grant, the government options are common but difficult routes to go. However, there are resources for the self-employed that can allow you to discover more open options to help make a grant easier to acquire.
-
Crowdfunding
This is another alternative source of funding that’s essentially beneficial for product launches. This area of financing is like launching a promotional landing page to gauge interest; it’s a pertinent way to test the market.
Crowdfunding comes with multiple benefits, but if you’re interested in following this route, it’s vital to note that each crowdfunding site is different. Some only allow funding for a limited period; some require you to meet your objective to receive any funds, and others serve as long-term community sites.
-
Fintech
The recent emergence of financial technology lenders could serve as a beneficial alternative funding route. These lenders typically provide smaller loans, credit options, lower barriers to entry, and function solely online.
Some notable options include Paypal, but the trick is to do your research. Each of the options comes with its own set of limitations and benefits, which may mean fewer funds available, being tied to a specific lender long-term or even higher interest rates. With fintech, organizations can benefit from extending their finance options, automated accounting, online payments, and more.
-
Venture Capital and Angel Investment
Venture capital or angel investments are firms or individuals that agree to invest in startup businesses. They are essentially looking for a return (you would need a growth plan or exit plan) or a share of your business.
This kind of funding is applicable for specific industries, i.e. medical, tech, and online. And usually requires your business to be disruptive and primed for growth. If this route sounds like a great option for you, then a solid business plan and pitch deck are essential here.
-
Peer-to-peer lending
Peer-to-peer lending is also identified as social lending, which essentially allows individual people to lend and borrow money to and from one another. “It’s like a combination of angel investment, crowdfunding, and loans”, opines Tim Foley, an expert on LaTrobe referencing tool.
There are multiple online platforms that serve as pitching services to connect you with investors for funds and insight or reach a community of like-minded individuals keen on investing. This type of funding happens to be more helpful for established businesses looking to grow and requires a thorough pitch deck to showcase.
-
Bootstrapping
This traditional way of alternative funding comprises doing everything you can to accumulate funding. While all of the choices listed above are still applicable, you’ll probably find yourself doing some kind of bootstrapping to prepare your business financially.
Consider gathering funding from family and friends, product or service presales, using your savings or selling different assets, and even looking into lines of credit. Bootstrapping is something every business owner must do to help feel out the early stages of understanding how much funding you need to function.
Endnote,
Collecting funds for your business in traditional bank loans can be challenging, and these alternative funding options can allow you to save time and rejection along the way. Irrespective of the funding options you avail, it’s vital to have a sound business plan to support your business and enhance your chances of acquiring funds.
