You’re an entrepreneur with big plans for your company, but those big plans need money and you have no credit, bad credit or you’ve reached the limit on your bank-approved loan limit. If you’ve found yourself in this situation, here are five alternative financing options other than traditional bank loans for funding your startup or small business.
1. Factoring or Accounts Receivables Financing
Factoring is also called accounts receivable financing, invoice factoring, factoring financing or asset based financing – these all describe using your customer invoices, your account receivables, for a quick infusion of cash. Simply stated, your company receives money now for invoices that will be due in the next 30, 60 or 90 days. This type of financing allows your business to grow now instead of waiting for customers to pay outstanding invoices.
Bjorn Peterson, Owner of Flex Business Capital, says “These immediate cash advances allow companies to make payroll, buy equipment or inventory, meet tax obligations, start a marketing campaign or simply keep the business running smoothly rather than waiting on customers to pay outstanding invoices. Our goal is to help business owners grow their business by providing steady cash flow.”
2. Venture Capital
Venture capital, sometimes referred to as VCs or VC money, is funds given to help startups or small businesses that have both high-growth and high-risk potential. The companies funded are often are in the tech or medical industry and often have an exit strategy within 3-5 years already in place. Venture capital can provide millions of dollars in funding that can be used to quickly grow a small business or startup company.
Venture capitalists often focus on one market so look for groups that work with financing for your industry. They appreciate a well-thought out business plan and decisive information on where money will be spent and the quick path to growth and revenue company leadership envisions.
3. Angel Investors
Angel investors invest in early-stage small businesses or startup companies in exchange for an equity ownership interest. Often this is a 20-30% ownership stake or return on their investment. Angel investors look for businesses with a great idea, leadership with integrity, and an area that they can provide strategic expertise.
Steve Case, co-founder of AOL and chief executive of investment firm Revolution, says “It’s really important that local entrepreneurs get their initial support from local investors”. He supports civic and community groups, as well as local angel investors getting involved in supporting new business – and not just in Silicon Valley or New York. He told the Wall Street Journal that “everybody, everywhere” should get a shot at the American dream. Often angel investors can be found right in your local community.
Crowdfunding is becoming more mainstream with companies such as Kickstarter, Fundly and Indiegogo. These sites allow startups and businesses to pool small investments from a number of investors instead of having to look for a single investor with a large amount of capital.
Crowdfunding can be used for every type and size of business: nonprofit, technology, education, medical and many more. It can pay for any part of the business from equipment to marketing to taxes to property lease.
Read the fine print of different crowdfunding sites and contracts before choosing one to use. Some have payment-processing fees or require businesses to raise their full goal in order to keep any of the money raised.
Small businesses focused on science, technology, medical or research may be able to receive government grants. The Small Business Administration offers grants through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
There are also government grants for women, veterans, Native Americans, and many other groups available. Some grants have no-interest or low-interest rates, others require annual paperwork to keep funding but no pay back requirement, but they typically all take a great deal of time to acquire.
No matter what type of business you have there are multiple funding options. Carefully reviewing each type to choose the one that makes sense for your startup or small business is a good idea. Want to talk through the options that work for your business? Give us a call or send us a message.
Bjorn Peterson is the Owner of Flex Business Capital. Flex Business Capital offers small businesses factoring financing to solve cash flow problems without debt, so they can focus on growth and success. Apply for funding for your company here.