Starting a business, especially a small one, may be startling to anyone who has not been into this venture before. If you do not have enough money to make your dream materialize, you do not have to panic and retreat. There is a lot that you can do to get the money you need to get yourself started and on the right track, from the capital to the business upkeep financial support that you may require at any given point.
For entrepreneurs with a lot of money saved up, the only obstacle to starting a business is coming up with a viable idea. But many aspiring business owners have the opposite problem — the idea is there, but the capital isn’t.
So what’s a would-be small business owner to do? There are plenty of other options to help you fund your new venture. Here are 14 options beyond bank loans for financing your startup.
Online lending. Recently, online lending services such as OnDeck and Kabbage have become a popular alternative to traditional business loans. Online lenders have the advantage of speed: An application takes only up to an hour to complete, and a decision and the accompanying fundscan be issued within days. In contrast, the traditional loan process can take weeks, or even months, to complete.Because of this, former U.S. Treasury Secretary Larry Summers said at the 2015 Lend It conference that he expects online lenders to eventually reach more than 70 percent of small businesses.
Factoring/invoice advances. Don’t want to take out a loan? Services like factoring and invoice advancing may help ease growing pains for small businesses. Through this process, a service provider will front you the money on invoices that have been billed out, which you then pay back once the customer has settled its bill. Eyal Shinar, CEO of small business cash flow management company Fundbox, says these advances allow companies to close the pay gap between billed work and payments to suppliers and contractees.
Financing services are offered by different role players in the business platform. Equity financing is one way you can make it big in getting finances to fund your business. You may work with the venture capitalists, who deal with large sums of money, or you would as well rather go for the angel investors who are a bit faster at simpler terms. It is, however, important to know the terms of the firm or agent you are working with.
If you have ever watched ABC’s hit series, “Shark Tank,” you may have a general idea of how equity financing works. Equity financing comes from investors, often called venture capitalists or angel investors. A venture capitalist is often a firm, rather than an individual.
The firm has partners and teams of lawyers, accountants and investment advisers who perform due diligence on any potential investment. Venture capital firms often deal in large investments ($3 million or more), and thus the process is slow and the deal is often complex.
Angel investors, by contrast, are normally wealthy individuals who want to invest a smaller amount of money into a single product instead of building a business. They are perfect for somebody like the software developer who needs a capital infusion to fund the development of his or her product. Angel investors move fast and want simple terms.
Finding financing in any economic climate can be challenging, whether you’re looking for start-up funds, capital to expand or money to hold on through the tough times. But given our current state of affairs, securing funds is as tough as ever. To help you find the money you need, we’ve compiled a guide on 10 financing techniques and what you should know when pursuing them.
Factoring is a finance method where a company sells its receivables at a discount to get cash up-front. It’s often used by companies with poor credit or by businesses such as apparel manufacturers, which have to fill orders long before they get paid. However, it’s an expensive way to raise funds. Companies selling receivables generally pay a fee that’s a percentage of the total amount. If you pay a 2 percent fee to get funds 30 days in advance, it’s equivalent to an annual interest rate of about 24 percent. For that reason, the business has gotten a bad reputation over the years. That said, the economic downturn has forced companies to look to alternative financing methods and companies like The Receivables Exchange are trying to make factoring more competitive. The exchange allows companies to offer their receivables to dozens of factoring companies at once, along with hedge funds, banks, and other finance companies. These lenders will bid on the invoices, which can be sold in a bundle or one at a time.