Getting business financing is the first big challenge of any company. But in this day and age there are more ways than ever before to get business financing. If you are looking for some conventional and unconventional ways to secure financing, this guide will help you through the process.
- Traditional or Online Bank Loans
Traditional bank loans are always a good way to start. These provide you with the backing of a reputable organization that’s still going to be there in five years. For newer businesses, they may even have mentoring programs you can take advantage of. Unfortunately, loan decisions can take three months and the banks are more cautious than ever before. For companies with daring ideas and short deadlines, traditional bank loans aren’t a good move. There are also several online lenders that specialize in business loans like Business Lending Pros and OnDeck.
- Family and Friends
This is one option if you want some money now with low interest rates, or even better no interest rates at all. If you do allow those closest to you on-board, make sure you have a comprehensive loan agreement in place. This should be written on paper for both your benefit and their benefit.
- Angel Investors
Angel investors are available through an array of online platforms. These are investors who take a small slice of your company in exchange for financing. The thresholds for receiving investment tend to be lower, but you have to give away part of your company in return. Luckily, these online platforms make paying back the loans easy. You can usually do it in one payment and the platform will distribute the money accordingly.
- Crowdfunding
Crowdfunding five or six years ago may have seemed like a terrible idea. But it’s becoming more viable than ever before. More and more companies are pitching their companies in the form of a video. They are then offering perks in exchange for thousands of dollars. Only businesses with real popular appeal should see this as a viable investment option. A good example of a crowdfunding company is LendingClub.
- Cash Advance on Future Sales
An advance loan is a loan amount based on your future sales. Each time a sale is made, a portion of that sale is paid automatically to the lender. These are short-term loans and you’ll usually pay anywhere from 10 to 50% of the original loan amount on top. These can be costly loans, but if your product is fantastic and you just need the right marketing to get it off the ground this can be a great loan option.
- Private Company Small Business Loans
Sometimes you may not be able to find an organization that will provide you with a small business loan. Instead, many large private companies are offering small business loans to companies they believe have promise. This tends to be almost framed like a competition. You have to show promise and show you can change the landscape as people know it before you can qualify for these loans.
- The Old-Fashioned Way
Finally, if you are struggling to find financing you may want to opt for the old-fashioned method. This is where you find an investor who wants to invest in your business. You may have to give away up to half of your equity in order to make this happen, though. It’s also a more time-consuming method of securing financing. For experimental business ideas, this is often the only way of receiving the capital you need.
Tips for Getting Financing
- Be realistic. Don’t ask for a crazy amount of money because you won’t get it. Since 2008, lenders are more cautious than ever.
- Be transparent. Reveal everything because investors will discover if you are hiding something.
- Research the lender first. Make sure they have experience in lending money to other companies in your sector.
It Takes Time
You may decide to use multiple options on this list. Securing financing takes time and you will have to jump through a lot of hoops, particularly if you are shooting for a large amount of money. Sometimes it may be worth asking for a lesser amount of money in order to get your business started. Once you show you can make your product or service work on a small scale, you can begin to scale upwards again through securing additional financing. Many lenders will take a second look at companies that demonstrate they can do this. With all this in mind, how will you go about finding the business financing your company needs?
I had no idea that there were so many financing options. I can see how different loans can fit different situations and businesses. I think getting a cash advance on future sales could be a really nice option, as long as you can pay it back quick.