So, you’ve been keeping your business afloat for a while but you feel you need more funding or some alternative business funding strategy… I am going to go ahead and suggest that you read on. Since every business out there is different, finding the funding strategy that suits yours best can prove to be a cumbersome task. When we talk about funding, we’re not just speaking about finance because business funding can come from a range of different sources. Depending on the size of your company, and the industry that you’re operating in, there are a range of different options available in the modern business setting. This guide to alternative business funding is to help you have a better understanding of the various forms of funding available for your business. Check outall the different funding ways mentioned in this article and decide which options are most appropriate for your business.
The primary ways owners end up funding a small business is through investment. One can sell equity in their company in exchange for capital. This is considered one of the most cost-effective ways to raise capital for your business, as you don’t have to pay any interest on the money that you receive from your investor. Most startups use this because most have very little assets, and therefore struggle to receive any form of capital from traditional commercial banks. Investors are able to give startups the money they need in exchange for shares in the company. One may consider this as an alternative business funding in case you’ve got one running already.
Selling equity comes with a couple of advantages such as avoiding costs like paying interest of some sort, the downstream benefits since the investors don’t want to see their investments fail, and when you receive investment you don’t have to meet the credit requirements that often prevent business owners from attaining capital.
The downside to selling equity is that you will have less control of your company in that your investors will have control. And they might even have more control than you. Selling equity means you stand to benefit less from the business further down the road. If you’re someone who wants to own the entirety of your business for the coming years, receiving investment is not the optimal type of funding for your business.
The other most popular version of alternativebusiness finding is through finance. Financing your operations is one of the most viable ways to get your business up and running. It’s also a great way to invest in technology or inventory if you need to grow your current operations. Many business owners try and avoid financing things because of the stigma surrounding interest rates,but what they don’t realize is that financing certain parts of your business can have a great impact on the future of their business. Traditional loans are one of the alternative business funding through finance typically provided by commercial banks. It has lower interest rates and costs less than other forms of finance. Basically, you receive some money which you’ll pay back over a set period of time. There is typically a fixed interest rate which you are required to pay back along with it. Many traditional loans will have to be secured against assets in your business.
Another form of finance is business credit card.This is a type of finance that businesses typically use to fund ongoing operations, not start businesses. Business credit cards are like personal credit cards, except they are tied to your business. You are basically given a set limit and you only pay back what you use, and only pay interest on what you use. The only problem with business credit cards is that they charge very high fees for cash advances. Using finance as business funding makes it possible for a business owner to retain equity, control and flexibility.
The downside to using finance is that its costly since you’ll have to pay some fee on top of what you borrow, you’ll always sign off some assets as collateral to secure the loan and it can be quite hard to get financing if you have little credit history or a bad credit report.
So, let’s say you don’t want to sell equity or get a loan. What do you do?Factoring maybe the way to go. It is a form of funding that is neither debt nor investment. You simply sell unfulfilled invoices to a factoring company who are then responsible for collecting the invoice when it is due. This way, you get the capital you need to keep operations going, without having to get approved for a loan or lose a portion of your company. One thing that you must keep in mindis that you have to notify your clients prior to selling their invoices to a factoring agency because they will be notified either way and it will make your business look bad.
Small business funding grants are another type of alternativebusiness funding. This should really be a first optionbecause it is basically free money. Small business grants are a form of government funding for small business. They provide small amounts of cash for qualifying business owners. This small business funding program is specifically designed to help small business owners with little capital. Researching grants before looking for any other form of funding is a great way to go.
Here is the thing. Don’t go for the first form that people point you to. There are all but suggestions. Be sure to assess your situation and your business and you’ll be on your way to make the best decision possible.