Post Menu and Details.
- Alternative Financing
- Business cash advance loans
- Invoice financing
- Peer-to-peer lending
- Borrow from friends and family
- Angel investors
- Wrap up
Reading time: ~4 minutes
Traditional business financing might come from a bank or a credit union in the form of a loan. Unfortunately, this type of financing isn’t often available for beginner entrepreneurs, especially those with non-traditional ideas.
Instead, innovative entrepreneurs have to look elsewhere for the funding they need to help their ideas off the ground. Here are eight alternative financing options for the out-of-the-box entrepreneur.
All too often, entrepreneurs need a quick infusion of cash to keep going. The easiest way to secure these funds is with business cash advance loans. These loans work similarly to individual cash advances, as they have short terms and high interest. Business cash advance loans are relatively easy to qualify for, but you need to pay them back quickly to avoid costly fees and interest rates.
The savvy entrepreneur will use the cash advance funds to grow revenue if all goes well. This decision gives an entrepreneur the means to pay the loan without worrying about excessive interest rates. Advance loans have less stringent requirements, so entrepreneurs usually receive them within twenty-four to forty-eight hours of applying for them, making them an excellent option for a time-sensitive project.
Creative entrepreneurs with a solid social media presence use crowdfunding to raise money. This method uses social media to ask people to donate various amounts of money attached to prizes and rewards. Alternative entrepreneurs can be highly successful with this fundraising method, but they need to have a large audience with a prior interest in whatever they develop.
When entrepreneurs use crowdfunding, they should respond to everyone who donates, which can be time-consuming. Unlike loans and other funding methods, entrepreneurs need to treat crowdfunding money as income and pay all required taxes.
This type of funding comes from the idea that you pull yourself by your bootstraps. Instead of asking friends, family, and lenders for money, you do everything you can to run a lean business and use the money you already have to cover costs. Some bootstrappers work full-time or part-time jobs while they build their businesses.
When entrepreneurs use bootstrapping to fund their businesses, they quickly realize that they cannot do everything at once. Bootstrappers have to work with what they have, using only cash rather than credit. These penny-pinching business owners have to be patient, but that patience can pay off.
A unique way of raising funds is through invoice financing. The idea behind this funding technique is to sell invoices to a third party at a lower rate. The sale gives the original business immediate funds, and it lets the third party make money off the payment of the invoice. This payment isn’t a loan, but it does cost the original business money since they sell invoices at a discount.
Before selling an invoice to the first buyer, entrepreneurs should find the third party that offers the best rate to earn the most cash for the invoices. Keep in mind that the third party takes on the risk, especially if businesses choose not to pay their invoices.
Entrepreneurs that want loans but can’t qualify for them from traditional banks can turn to microlenders. Microloans often go to new businesses that need working capital. In some situations, these loans can be for as little as $100 or as much as $50,000.
Lenders have repayment requirements, so entrepreneurs should understand what they are committing to before signing on the dotted lines. Often non-traditional lenders have shorter terms because they lend to risky borrowers like entrepreneurs. These lenders might want collateral or personal guarantees because of the risk involved.
Because businesses know how hard it can be to find financing and credit, they often lend to each other. Peer-to-peer lending lets friends loan each other money through intermediaries that set the terms and interest rates. Lenders don’t check credit with peer-to-peer lending, so credit scores remain unaffected.
This type of loan removes the traditional bank but opens up opportunities on unique platforms. Often, peer-to-peer lending starts with matching business ideas to non-traditional lenders. The platforms match people so entrepreneurs can focus on growing their business rather than applying for loans.
Some entrepreneurs have generous friends and family who want to see their businesses succeed. Friends and family can loan money and ask for interest back. These buddy investors can become silent partners who will benefit from the business’s success. Entrepreneurs can set up the terms and conditions when they borrow from people they know.
Because there is a risk involved in borrowing money from friends and family, it is helpful to have a lawyer or intermediary involved in the process. No one wants to lose friends or damage relationships because of money problems, so keeping things professional is a good idea.
Before asking friends and family for money, be sure you’ve exhausted other resources unless you have people in your life who love your ideas and are excited to be involved. Be prepared to offer incentives for people to invest in your business to see the value in what you are creating. Never ask for money from people you know won’t give it to you.
Angel investors are wealthy people who are happy to invest in startup companies. When you receive financing from an angel investor, you’ve got to have a management style they like and long-term plans that make them interested in being a partial owner in your company.
It is helpful to have a lawyer involved with an angel investor, and usually, the angel has their own attorney to negotiate the equity they take from your company. The angel might want you to repay the loan, or they might want to sell back their equity to you when they want a return on their investment.
Non-traditional entrepreneurs have several non-traditional funding options at their disposal. These funding opportunities have pros and cons that can make or break business plans and goals. Take time to choose the funding options that fit your needs and will help you keep your business functioning at its peak.
Thank you for reading!