Starting and running a business is an expensive task, and even if you put together a detailed business plan, chances are that your first couple years of business will be full of financial stress. Many startups don’t break even for years- Honest Tea, founded by Seth Goldman took five years to make any profit, and after ten years, they partnered with Coca-Cola. They got their money those first few years from personal investments, and funding from family and friends.
Sometimes, that’s not an option though. Not everyone’s friends and families are loaded, and some entrepreneurs don’t want to mix their business finances and personal relationships. Business owners have a lot of options when it comes to raising capital, including the Small Business Administration, banks, old-fashioned fund-raising, investors, and more.
But before we talk about some alternative loan options, let’s cover why banks might not be a viable choice. Startups rely on innovation, risk-taking, and creativity. Banks and other traditional lenders are all about security. They want to see hard proof that their investments will pay off. So if your business idea doesn’t align with their vision- “they just don’t get it”- or you (or your business) have poor or no credit, it’s unlikely you’ll secure a loan, especially one with a feasible interest rate.
Luckily, there are some other options, from securing alternative loans to raising the money yourself. Here are some of the most common ways that startups can be funded.
Merchant Cash Advance
Of course, merchant cash advances are what First American Merchant specializes in. Unlike a loan, a cash advance is a purchase. An individual or company purchases a future amount of the business. This is a great way to get startup cash quickly, but it does come with its caveats. A merchant cash advance, like any loan, means that it will take longer for you to be profitable; you’re paying back the money you borrowed or were advanced. But sometimes that is necessary in order to obtain the resources it takes to become profitable in the first place.
Grants and Contests
Though loans and advances are accompanied by some form of interest, they are the most straightforward methods of obtaining startup funding. Other methods take a lot more effort on the behalf of the entrepreneur, but can yield just as much or more money, as well as publicity. If you want a loan, you go to a bank, apply, and are either accepted or rejected. Applying for grants or business contests is a lot less cut and dry.
The Small Business Administration has grants available to businesses who meet certain requirements, usually involving a specific niche, or innovation in a certain field. Many other large entities have contests and other opportunities as well. In order to apply, you’ll have to find the opportunities, determine if you meet the requirements, and then fulfill the criteria for entry. Some organizations that offer annual grants and contests are Chase and Amazon.
Companies like Kickstarter and Indiegogo have made crowdfunding somewhat of a buzzword. From Teachers trying to get money for their classrooms, to webcomic artists producing and selling collaborations and physical copies of their work, the possibilities are seemingly endless. The trick here is that you have to find the platform with the right audience for your business/cause. You also have to pitch the idea in a way that will make people want to support it and share on social media. The huge benefit of crowdfunding is that if you’re successful, you’ve acquired not only the funding you need, but a crowd who supports you and will be interested in your future endeavors.
Lots of Options
While banks are less likely to fund businesses in fields that aren’t deemed “traditional”, or proven to be lucrative, merchant cash advance is an option for many industries- trucking, restaurants, construction, the medical field, retail, and more. There are grants and contests in many fields, it’s all about finding one for which you meet the requirements. Crowdfunding is viable for popular ideas that people can get behind.
These are just a few options for alternatives to business loans. Whether the bank deems you a bad investment, or you just want to avoid interest rates, there will always be a way for you to fund your business. It’s up to you to find the best method for you, and then do everything you can to make it happen.