Starting and running a small business can be a costly endeavor. From buying supplies and stocking up on inventory to managing payroll and renting an office, maintaining enough cash in your account to keep your doors open is no small task.
To keep their business up and running, many entrepreneurs seek outside funding.
Yet, according to the NSBA 2017 Year-End Economic Report, 27% of small businesses are unable to access adequate funding. Without strong financing behind you, growing your small business is nearly impossible.
Luckily, there are many funding options available to business owners—you just have to know where to look.
Use the following list of creative funding ideas to help you build your business on solid financial ground.
1. Peer-to-Peer Lending
Peer-to-peer lending (P2P) or marketplace lending is different from traditional lending options since it takes the banking institution out of the equation and instead matches borrowers directly to lenders through an online platform.
Borrowers apply for a loan on a lending site (such as Upstart or Lending Club), and investors can pick and choose which loans they want to fund. Investors can fund a loan in full or just a portion of it. So you may have multiple lenders individually investing in your business loan.
P2P marketplaces have grown in popularity in recent years due to their low interest rates, simplified application process, and quick access to financing.
Crowdfunding is a great way for cash-strapped businesses to obtain funding without going into debt through traditional financing options.
Popular sites like Indiegogo, Kickstarter, Patreon, and Fundable make it easy to present your business and solicit funds from friends, family, and strangers on the internet in exchange for some benefit or reward.
For example, you might offer investors exclusive merchandise or early access to new products when they launch.
If you do go this route, keep in mind that each crowdfunding platform has its own rules and fees. Be sure you understand the fees and deadlines associated with each site so you can choose the platform that’s right for you—and so you don’t end up losing money you were counting on.
If you’re not afraid of a little competition, consider entering business contests for a chance to win cash rewards. Prizes can range from a few thousand dollars to hundreds of thousands of dollars.
And the best part? These prizes are interest-free, often with no strings attached.
Contests may sound unorthodox, but they can be an effective way to raise money for your business, get feedback on your business plan, expand your network, and receive valuable recognition for your work.
For best results, do your homework. Don’t just apply to every contest you find. Look for contests that fit your business’s niche or target market. This approach will narrow down the competition and give you a better chance at winning because you’re likely to be evaluated by judges who understand your specific market.
4. Small Business Grants
Similar to contests, business grants are a simple way for startups to win free money.
You can find grants sponsored by the federal and state government, smaller local grants, and grants from private businesses and institutions.
For example, FedEx runs a small business grant contest with awards ranging from $15,000 to $50,000 (plus FedEx business services).
Keep in mind that many grants do have requirements for what you spend that money on. So if you’re looking for a cash injection for something specific, make sure you can actually use the money for that if you win.
As the name suggests, microfinancing provides small, low-interest, short-term loan options for businesses. Microloans are typically under $50,000, with the average loan around $13,000.
Microfinancing is a good option for businesses that need only a small amount of funding (say for purchasing a large order of inventory or managing cash flow) and can’t get approval from a traditional bank. (Banks are more likely to turn down small loans because they don’t make great returns on them).
Microloans are also a good way to build a credit history if you don’t have good credit yet. The smaller amount means less to pay back and less risk that something will happen and cause you to miss payments.
6. SBA Loans
The Small Business Administration supports small and growing businesses through several loan programs. The SBA 7(a) loan program is one of the most popular small business lending options available.
The 7(a) loan program provides financing up to $5.5 million for working capital, expansion, and equipment purchases.
SBA loans are issued through traditional lenders like banks and credit unions and guaranteed by the federal government, allowing the SBA to offer flexible terms (including more time to repay) with low interest rates.
Longer terms and lower interest rates mean more money in your pocket to invest back into your business.
7. A Business Line of Credit
Cash flow is one of the biggest funding challenges small businesses face. Seasonal fluctuations, inventory needs, and accounts receivable are all large drains on your business’s cash flow.
To manage cash flow effectively, many small businesses rely on a line of credit. A business line of credit is a certain amount of money you can borrow on demand and repay when you no longer need it.
Similar to a credit card, a business line of credit is revolving. When you draw funds, you start accruing interest on the amount borrowed. When you pay the amount back (plus interest), the amount you borrowed is once again available to you when you need it.
This arrangement is different from a regular business loan—which can be drawn only once in full—and is typically used for a specific purpose. But a credit line gives small businesses the flexibility to draw on funds as needed and invest them strategically.
8. Vendor Financing
Need office supplies or other services for your business? Instead of purchasing those supplies outright, you may be able to work out a vendor financing agreement with your suppliers.
Vendor financing is a good way for businesses to get the equipment or services they need to run their operations without having to go to a traditional lender for funds.
Vendor financing can take a few forms:
1. Vendors lend money to a customer that the customer then uses to buy the vendor’s inventory or services.
2. The vendor defers payment for their goods or services (with or without interest).
3. The customer (borrowing company) transfers shares to the vendor.
Vendor financing helps businesses build credit while reserving bank financing solutions for other critical needs, like capital improvements.
In order to take advantage of this funding option, you will need a good business relationship with your vendors.
9. Inventory Sale
Spring cleaning isn’t just good for your home. It’s good for your business too. Go through your business inventory and pull out any outdated or surplus items for a sale.
Selling off extra inventory will boost your funds and clear out space for new or updated stock that can help improve your sales margins.
Another simple way to raise funds if you’re a product-based business is to presell your products.
By taking preorders of your products, you can bring in needed money to run your business operations and fulfill those orders before spending your money to produce them. Preselling is also a good way to avoid overstocking your inventory—preorders give you a better idea of the demand for the product so you can avoid overestimating.
Just be careful that you don’t fall behind on fulfillment. You could be backed into another financial corner if customers start asking for their money back.
Unless you’re launching a business that requires a lot of start-up capital, you can get far with your own money (and you don’t even need that much of it).
Consider funding (or partially funding) your business from your personal savings, side hustles, and through good old-fashioned frugality. Look for ways to save on costs, like working from home instead of renting an office space or leasing pricey equipment instead of buying it.
If you’re still considering what your business will be, research businesses that require little capital to start. This awareness makes it easier to ramp up your business and start building revenue before you have to invest big money to accelerate and scale.
12. Purchase Order Financing
Remember that pesky problem of cash flow? Seasonality and fluctuations in supply and demand can put your business in a bind when it comes to ordering and supplying your products.
For instance, you may lack the funds to purchase a large order of inventory—but without those products, you can’t make sales. And if you can’t sell the product, then you can’t make money to buy more inventory.
That’s where purchase order financing comes in.
Purchase order financing gives a funding solution to businesses that don’t have the cash on hand to purchase the inventory they need to complete customer orders. A purchase order financing company will pay for the order themselves, and then, after you’ve sold the inventory and have cash again, they’ll collect the payment plus fees.
Typically, the purchase order loan will not cover 100% of the order costs—you cover a portion to show the financing organization your business is reliable and worth funding.
Final Thoughts on the Creative Business Financing
Business financing isn’t one size fits all. How you decide to fund your business will vary depending on where you are in your business journey, your particular financial needs, and your business goals.
We can also mention A Lawsuit Loan. A lawsuit loan is similar to other types of loans, such as personal loans and auto loans. However, unlike those types of loans, lawsuit loans are usually only offered to individuals involved in litigation.
Use these funding ideas to discover the financing options that are right for you and your business.
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