In the past 10 years, it has become more difficult to secure a traditional loan for your business. Laws continue to be passed to secure the banking industry since the bubble of 2008. It’s not all doom and gloom for new business owners looking to grow and fund their business! Fortunately, there are many viable options to fund your business without a traditional business bank loan, we have 11 ways right here.
1. Product Presales
Startups often try to sell their services or products in a pre-sale. If your product or service is good enough, it can sell well on a pre-sale. You can also offer your customers a discount, encouraging them to buy your product or service. For example, you can offer a customer to provide a particular service at a discounted cost for a specific number of years if they buy it on a pre-sale.
2. Side Business
If you have more than one skill, you can start a side business to fund your startup. Side businesses are often flexible and have low overhead costs. For example, you can work as an independent consultant to fund your B2B startup. You can also consult for cash if your skills are applicable in other non-competing industries. However, splitting your time between the two activities can be quite challenging.
3. Renting Out Your Home
Renting out your home is the simplest way to raise money to finance your business especially if you own a large house. It is not as risky as selling your house or using it as collateral to secure a business loan. But, rental income may not match your funding requirements. Now in days, there are apps like Airbnb that allow you to easily post your home as a vacation rental. Nonetheless, it can help you maintain steady cash flow for your business.
Crowdfunding is an alternative form of business financing that is used to raise money from a large number of people. There are thousands of crowdfunding websites offering a variety of online fundraising campaigns in the United States. Platforms such as Kickstarter have helped people raise millions of dollars through crowdfunding.
Several grant programs are available on federal, state, and local levels. Government grants are rarely offered to start a business. In fact, a large chunk of federal and state grants goes to non-profit organizations in the country. However, women entrepreneurs can receive grants for starting a business. You can contact the nearest Women’s Business Center to get information about government grants.
6. Mergers and Acquisitions
Mergers and acquisitions can help you strengthen your business. Acquiring a competitor’s business can increase your market share instantly. It can also help you diversify your business. Companies often buy their suppliers and save big on the margins that suppliers used to add on the costs.
7. Line of Credit
The line of credit is similar to a business credit card but a lot cheaper. Usually, a financial institution such as a bank or community lender offers a line of credit to a commercial organization. Borrowers can use the line of credit to raise money anytime they want. The money does need to be returned within the agreed-upon time limit. Interest is charged only on the amount borrowed. If you’re a business with a good credit score, this might be a great option for you.
8. Home Equity Loan
If you are looking for a way to fund your startup, you can tap into your home equity. Home equity financing can be set up as a loan or a line of credit. Usually, you can borrow up to 85% of the equity in your home. However, borrowers still have to pay their mortgage. The lender can foreclose on your home if you fall behind on the home equity loan payments.
9. Winning a Contest
If you have the perfect pitch, just enter a startup competition. Winning a contest or a startup competition is a great way to fund your business idea. Entering a competition can also help you test your entrepreneur skills and get some media coverage. You have to either develop a new product or prepare a good business plan to participate in such competitions.
10. Personal Savings
First-time entrepreneurs often find it difficult to get seed money without showing a track record of revenue. If you invest some of your personal savings in your startup, it may encourage professional investors to fund your business in future. The biggest advantage of using personal savings to fund your business is that you don’t have to give up any equity or control. Plus, you are free to grow organically.
11. Factoring Invoices
Invoice factoring is a simple and quick way to for companies to improve their cash flow. Commercial organizations can sell their unpaid invoices to an invoice factoring company at a discount for cash. This is a viable option for many businesses. However, there are many lending companies that look to take advantage of businesses by charging much higher interest rates than conventional lenders. Look for our post in the upcoming weeks on how to pick a financial lending company if you decide to go this route!