Financing your small business can be hard to achieve, especially in the times of economic austerity we are currently experiencing.
The banking system has narrowed down its “eligible” loan candidates, so you must come up with alternatives to get your business up and running again.
Young firms especially, need an initial capital to sustain them until the much desired “break-even” point. So where is the money?
Either way, you need not to stress over it; there are plenty of funding opportunities out there, outside the traditional financing system and we are going to present to you five of them! Pick the one closest to your case and transform your small business!
The past few years, angel investors are the “heroes” behind many successful brands across the globe.
Either we‘re talking about private placements from “smaller” investors or a group of wealthy entrepreneurs “pooling” their funds, they can definitely help you transform your small business into a large corporation.
Of course, no one will fund your dreams, unless your dreams are feasible. Prepare a solid business plan to present them and should they see the “spark” in you, they will want to join in and help you take off! Angel investors may be involved in business development as well, by providing you with valuable advice, besides rounding up your initial capital. They can become some sort of “co-founder” without assuming total control of your business.
This alternative source of funding emerged in 1997 and since then, has become increasingly popular.
The concept is simple; you propose a project or idea to be funded, you then promote it via a platform that gives it the necessary pitch and then your “fans” make donations to make it happen!
Crowdfunding has brought together aspiring project initiators with committed supporters who believe in the people behind the projects so passionately as to provide them with valuable monetary support. Only in 2013, the crowdfunding industry raised over $5.1 billion worldwide and some of the best mediators to fund your small business include ArtistShare, IndieGoGo and Kickstarter.
Do it yourself
Apart from seeking funding outside the company, many entrepreneurs fund their projects out of their own pockets.
This form of self-fund is called “bootstrapping” and is especially effective since you don’t have the fear of loans or accumulating interests hanging over your head and distracting you from making your dream a reality.
To accomplish bootstrapping, you can use your savings account, zero interest credit cards or other assets you may have available. If you believe in your project and fuel your small business from your own funds you will be able to sustain your project until a formal funding opportunity appears. Plus, future investors will feel more comfortable funding you knowing that you share the risk.
Account Receivable (A/R) Financing
Many small businesses have large amounts of cash trapped in the accounts receivable section of their balance sheets. So, instead of focusing their time and energy trying to collect it, they put it as collateral in a financing agreement.
This process, also known as “factoring”, is a type of asset-financing arrangement and the company receives an amount of the total A/R.
The capital freed, is highly dependable on the age of receivables. The longer your clients owe you, the less you can expect. Nonetheless, the benefit of factoring is that the risk related to accounts receivable is transferred to the financing company and you get to grow your small business rather than wasting your time with, most likely, lost cases.
Family & Friends
Last but not least, don’t forget your biggest fans! You friends and family are the people that believe in you no matter what.
Either you ‘re just starting your company or need financing to keep your small business running, their support can become “tangible” in your time of need, by lending you money.
The most obvious disadvantage of such a gesture is risking personal relationships in case your business fails to deliver. This is the reason why we recommend borrowing just the right amount of cash and making it official with some form of contract, so as to let them know you will not betray their trust in you. Legal advice is a “must” here for both parties. Use that money to built your online presence, boost marketing or develop new products. Should it all go well, you will be able to pay back your relatives and/or friends on time, plus interest!