6 Alternate Ways to Finance a Small Business

As an entrepreneur, building a successful business relies as much on your core business idea as it does on your ability to secure sufficient capital. Obtaining a business loan can be challenging, and finding a venture capitalist interested in your idea can be even more difficult. A personal loan might not be enough to support you, leaving you to wonder where to turn.

Various types of funding are available to you as an entrepreneur. The nature of your business and its growth potential will largely determine the most suitable funding option.

Here is a list of alternative small business funding options to help guide you towards success:

1. Using Credit Cards Business credit cards offer a quick and convenient way to finance a startup. You can use the card for initial expenses and make minimum monthly payments, which are generally low and affordable. This method provides certainty since you can fix the payments each month and plan your budget accordingly. However, spending must stay within the credit limit, and late payments should be avoided to prevent hefty interest charges. Credit cards are ideal for small businesses or solo entrepreneurs.
2. Approaching Venture Capitalists This route is suitable for businesses that have progressed beyond the startup phase and are seeking aggressive growth. Venture capitalists can provide the essential capital required in such situations. Before pitching to an investor, it is crucial to know your business valuation. Tools like Complete Business Valuation’s advanced software can help with this.
3. Borrowing Money from Family and Friends Family and friends can be a valuable resource when you need urgent funds for your new or growing business. It’s advisable to develop a formal business plan with projections before approaching them to give them a sense of security. Clearly specify the type of financing, whether trading equity for funding or taking a loan with interest, to ensure transparency.
4. Factoring Factoring involves selling your receivables at a discount to get quick cash. This method helps bridge the gap between receiving dues from customers and making payments for working capital, such as creditors and employees. Companies are usually charged a fee, which is a percentage of the total amount advanced.
5. Crowdfunding Several websites allow small businesses to collect funds from various sources, typically a mix of individuals and companies. In return, companies can offer rewards or a small share of equity. Before selecting a crowdfunding platform, read the contract and terms and conditions to avoid surprises. A processing fee is usually charged for the funds raised.
6. P2P Lending Peer-to-peer (P2P) lending is similar to crowdsourcing, where a firm borrows from unrelated individuals or “peers” without a traditional financial intermediary. P2P loans for business are typically secured loans, with interest rates set by lenders in a reverse auction model. These features make P2P loans a great option for short-term financial assistance.

By exploring these alternative funding options, you can find the right financial support to set your business on the path to success.