Whether your business is established or a startup, money is always a concern. From purchasing new equipment to covering payroll to hiring new employees, cash flow must be managed closely. Failing to do so will have devastating consequences. Opportunities will be missed, it will be difficult to keep up with the competition and/or growth and expansion will come to a halt.
A year-end report by the National Small Business Administration (NSBA) revealed that 27 percent of the businesses surveyed claimed they were unable to secure the funding they needed. Desperate for funds to launch their venture or fund expansion and growth, entrepreneurs are often forced to look elsewhere. If your struggling to secure traditional financing, consider the following list of alternative business funding solutions:
Friends and Family
One of the most common ways an entrepreneur can fund their startup is by borrowing money from friends and family. Eager to see you succeed, some are willing to help get your business idea off the ground. However, the disadvantage is the potential cost of failure; it isn’t just financial, it’s also personal. If you choose this option, make sure the friend or family member understands your plans and is comfortable with the risks involved.
“Business is personal, regardless of what people say. For most people, it’d be difficult to separate the two,” says David Nilssen, CEO of Guidant Financial, a small-business financing company.
Some small business owners turn to credit cards for a funding solution. However, using a credit card to finance a small business is an expensive solution. Many entrepreneurs don’t realize that credit card issuers determine annual percentage rates based largely on their personal credit score. Thus, your options here are limited if your credit score is an issue; you might only be able to obtain a secured credit card, which typically involves higher fees than a regular credit card.
A popular option, crowdfunding allows small businesses to raise money via online campaigns through sites like Kickstarter and Indiegogo. Rather than paying back your donors, you give them gifts; thus, crowdfunding is often called rewards crowdfunding. This option works especially well for the entrepreneur who has a product and wishes to test the market. Ultimately, crowdfunding offers the chance to validate the opportunity.
It’s true that grants from private foundations and government agencies can be difficult to secure. Nonetheless, they are a viable (free capital) option for raising startup funds for your small business. For example, those who served in the U.S. military have access to business grants for veterans. Female entrepreneurs can also take advantage of small business grants for women.
With so few traditional financing options, alternative lenders have stepped in to bridge this gap for small businesses with a wide range of business loan options. One of the most popular financing options is the merchant cash advance. Merchants who have bad credit issues (which often stem from a past, failed business ventures) and/or are considered to be “high risk” can easily secure a cash advance through a high risk specialist like First American Merchant. Unlike a traditional business loan, a cash advance does not require stellar credit, time in business, or collateral. Entrepreneurs can secure cash in as little as 24 hours to fuel growth, fund expansion and cover operational expenses.