9 Untraditional Ways to Fund a Business
Since the recession in 2008, securing traditional bank loans has become more difficult. This is especially true for start-up businesses, young businesses, as well as small businesses. In fact, many banks have reduced, eliminated or outsourced their small business banking departments entirely. Banks are not as willing to take on the risk of small businesses and owners must look outside of the bank to find funding.
The number of Americans starting their own businesses continues, however, to climb year after year. Funding has to come from somewhere! What do you do if you’ve got a great business case, but no business operating history?
Fortunately, there are many viable options to fund a business without a traditional business bank loan. Today, we will share 9 non-traditional ways to fund your start-up or small business.
1. 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.
2. 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.
3. 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.
4. Factoring Invoices
Invoice factoring is a simple and quick way for companies to improve their cash flow. Commercial organizations can sell their unpaid invoices to an invoice factoring company, like Primary Funding, 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.
5. 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 a particular service at a discounted cost for a specific number of years if they buy it on a pre-sale.
6. 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.
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, female entrepreneurs can receive grants for starting a business. You can contact the nearest Women’s Business Center to get information about government grants.
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.
Being a business owner requires constant creativity. Finding creative, untraditional ways to get your business off the ground will be your first lesson!