Alternative Financing Methods for Startups
Securing funds for an upcoming project is not easy. Many new entrepreneurs have great ideas but are often turned down for bank loans. Loans from the Small Business Association (SBA) are usually more accessible, but with the number of startups increasing daily, these loans are becoming increasingly competitive.
So, what is a rookie entrepreneur to do? Here are a few alternative options for financing a start-up
- Online lending
In recent years, online lenders have become a popular alternative to traditional lending institutions. Now, you can apply for a loan in a little over a minute, and your funds issued within days.
Because of this ease and speed, it is therefore no surprise that industry experts are envisioning that online lenders will eventually be the main funding source to more than 70% of small businesses.
- Venture capitalists
Venture capitalists focus on industries whose startups have both high-growth and high-risk potential. In addition to offering capital, they can also offer insight and advice to entrepreneurs on what they need to do to ensure the success of their product.
However, because of the large amounts offered and the high-risk involved, venture capitalists often expect to recover their investment within the first few years after the lending process.
- Angel Investors
Angel investors invest in new businesses in exchange for an equity ownership interest. Not only do they offer their money, but they also come with their needed strategic experience to provide tactical and ideological benefit to the startup company they are investing in.
This makes them an attractive funding option for startups that don’t need large investments and want to retain some control over their business.
Kickstarter and Indiegogo are just a few of many sites that a new entrepreneur can sign up on to get the desired boost in startup capital. These sites allow businesses to bring together small investments from many investors instead of having to look for a single investment.
- Merchant Cash Advances
This is where the lender offers a lump-sum payment to a business in exchange for an agreed-upon percentage of future sale returns.
One company that offers merchant cash advances is First American Merchant (FAM). As FAM’s team of business-finance experts puts it, merchant cash advances are simply a purchase of future sales at a discount.
This way, a startup gets to grow by having the necessary operating capital to keep it going, while pushing sales in its own pace.