You have to spend money to make money. But for many businesses, finding the cash to bring their plan to life can be a serious challenge. If your business has just launched or is in the pre-launch stage, you may be turned down by every bank in town.
Here are eight creative ways to get financing for your business.
1. Crowdfunding
If you’re launching a new product, crowdfunding can give your business a financial boost. Sites like Indiegogo and Kickstarter allow everyday people to invest in businesses and their ideas.
Most of these platforms are reward-based, so you’ll have to give your backers something in exchange for their investment. Also, keep in mind that some sites have fees for processing payments. Others may require businesses to increase their financial goal to keep the money that’s raised.
2. Factoring Advances
If you have outstanding invoices, there are service providers that will give you an advance on those invoices, which you simply pay back once the customer has paid the bill.
Factoring, or invoice, advances allow a business to keep a steady cash flow while waiting for customers to pay their outstanding invoices. This also gives businesses the chance to take on new projects more quickly or hire new workers.
Typically, lenders will give advance between 70% and 90% for the first installment, and then hold 10%-30% of the invoice as a reserve. The advance percentage will depend on the customer’s track record of paying in full, collecting full payments, the industry, the reliability of the delivery, and the business’s financial stability.
3. Micro Loans
Businesses can also apply for micro loans, which are typically short-term. Some have low interest rates, while others have high rates. It all depends on the lender, your credit and the amount of money borrowed.
Micro loans can range from $500 to $50,000 – sometimes more. In many cases, lenders are willing to extend loans to businesses that have no credit history.
4. Grants
Grants may also be available to provide your business with the funding it needs to expand or stay afloat. Rarely are grants given to launch a business.
Businesses that are focused on research or science are more likely to receive government grants. The SBA may offer money through the Small Business Technology Transfer and Small Business innovation Research programs.
If your business qualifies for these grants, you’ll need to meet federal research and development goals, and you’ll also need to have a high potential for commercialization.
5. Side Business
One way to fund your main business is to start a side business. Typically, the best options are ones with low overhead and flexible schedules. Maybe you can work as an independent consultant to fund your startup or new project.
The only drawback with this option is lack of time. It can be challenging to run two businesses, so you’ll need excellent time management skills.
6. Line of Credit
A line of credit is similar to a credit card, but with more attractive rates. Banks are typically the ones that extend lines of credit to businesses, but these are often easier to obtain than conventional loans.
The benefit of a line of credit is that interest is only charged on the amount that’s borrowed. If your business has good credit, you’ll have an easier time getting approved for a line of credit.
7. P2P Lending
Peer-to-peer, also known as P2P, lending is an alternative way to finance your business. With P2P, retail investors can fund businesses and businesses can get the money they need without having to go through an institutional investor.
P2P lending is a quick and cheap way to raise money, and most – if not all – of the process can be done online.
8. Revenue-Based Loans
With revenue-based loans, businesses repay borrowed funds by paying a fixed percentage of their revenue.
The advantage here is that businesses don’t have to worry about making a fixed monthly payment. However, there is typically a repayment cap of 4-5 years.
In most cases, revenue-based loans are more expensive than traditional loans, but they don’t require security or collateral.
Funding a business can be challenging, but with a little creativity and determination, you can get the cash you need to move forward with your plans.
