Starting a business of your own might be a dream that you have had for a long time, but if finances are getting in the way of you launching your enterprise, you may have resigned yourself to letting go of your aspirations of being your own boss. But it certainly does not have to be this way. Even if you have encountered challenges in the past when it came to funding your start-up, there are several alternative finance solutions now available from an alternative financier that you can take advantage of. In other words, there is no reason to lose hope or give up on your idea of opening up and running your own company.
What are some of the alternative solutions that are available for financing a new business when you are not able to take out a traditional business loan? Continue reading to access a few tips, and also consider speaking with a qualified alternative financier to learn more about what your options are.
Crowdfunding has become one of the most popular alternative finance solutions for start-up businesses of all types. With this type of funding, you do not need to rely solely on loans from banks and other lenders to get your company off the ground. Instead, you could pool small amounts of funds from various contributors that could include everyone from friends and family, to individuals who find out about your new idea on the internet via social media networks and your own website.
The great thing about crowdfunding is the fact that you are in control. There are a variety of platforms that you can choose from, some of which take more fees than others, so you can decide which one will give you the biggest benefits. But crowdfunding doesn’t just end with the usual ‘give a donation, get a reward’ model. These days, there is what is referred to as peer-to-peer lending and peer-to-business lending, and both of these approaches allow various lenders to provide your company with the money you need to get started.
Beyond that, you could take advantage of equity crowdfunding, which involves investors getting a stake in your company, just as they would if they were buying stocks in your enterprise. Plus, there are also other newer forms of crowdfunding, such as those that offer profit and revenue sharing, and those that are based on invoice trading, which is a type of financing based on receivables.
Lines of Credit
When you are first starting out, you will have a lot of short-term costs to cover in order to get your business up and running. These expenses might include everything from buying all of the equipment that you will need to operate, to purchasing the inventory that you will be selling to customers. And, of course, don’t forget to also factor in the cost of overhead expenses, which are basically your day-to-day operating expenses, like the cost of your electricity and your rent.
To help you gather the funds that you will need to pay off all of these short-term expenses, you could opt for a line of credit. Basically, this type of funding for businesses works in a similar way to a standard credit card, so it is not all that complicated. Put simply, you will be provided with access to a specific amount of money. Then, you could use that line of credit in order to get your business going, whether that means buying a new warehouse or retail space, buying a new piece of machinery, or investing in technology. In making these purchases, you will be withdrawing the funds that you need, and you will be charged interest on the money that you take. Interest is usually less than that charged by credit cards, so this is a great alternative option that you can take advantage of.
Asset Based Lending
There is another type of lending that you can use when you need funds to get your business up and running, and it is referred to as asset-based lending. This basically involves taking the assets that you have to purchase and using them as collateral to get the amount of money that you need in the form of a loan.
What does this mean, exactly? Well, you basically tell the asset financing company that they will be the owner of whatever assets you end up owning until you have finished paying for them in full. What’s great about this option is that you can opt for a lease purchase or a hire purchase. A lease purchase means your asset will remain off your balance sheet until you have paid the amount in full with any of the necessary purchase fees, while a hire purchase means your asset will be on your balance sheet.
In factoring, you will sell your business’s receivables at a discounted rate as a means to receive upfront cash. This is a great way to get the funding for your start-up if you have poor credit, but it is also a popular method that is used by those in the apparel manufacturing industry and other industries that are required to fill their orders a long time before they will end up getting paid for them.
One thing to consider, however, is that this is a pricey way to get funding. You typically have to pay a fee that is calculated as a percentage of the amount of receivables you are selling. So, for example, in an effort to get the money that you need a month in advance so that you can keep your business going, you could sell your receivables and get hit with a 2% fee. So, this is something that you should think about, and you should weigh the pros and cons before deciding if this method of getting money into your company is truly right for you.
Online Marketplace Lending
With marketplace lending, you can take advantage of online platforms that give you the chance to connect with investors who would be willing to give you a loan. Lenders on these platforms provide funding to small businesses either indirectly or directly, and the platforms rely upon algorithms that are driven by data in order to effectively and accurately gauge a borrower’s creditworthiness.
If you are searching for a method to inject money into your business and you would like to work with a lender that isn’t a bank, an online marketplace platform might be the right choice for you. And you certainly wouldn’t be alone, as many small businesses are taking advantage of this financing option to connect with various online lenders. You might even find that you receive approval for these loans more quickly and easily than you would at a credit union or bank.
Now that you know a few of the many alternative solutions for financing any new business in just about any industry, you can take your dreams of being your own boss to the next level. Just be sure to be careful with your business finances, just as you would with your personal finances. And hire the right team to help you keep track of income and expenses once things get going. Before long, you will be well on your way towards owning a successful company and doing what you love.