Operating a small business is like flying on a bicycle while balancing flaming torches. And seeking funds to continue running the business? That’s like doing the same thing blindfolded. For real.
I’ve been there. We’ve all been there. You need money to grow but the bank laughed at your loan application. Don’t take it personally – that’s what they do to all of us these days.
The good news, though! Traditional bank loans are no longer the only game in town. Let’s dive into some alternatives that might just work for us mere mortals.
1. Crowdfunding: Asking The Internet For Money (Nicely)
Do you recall when begging for money was embarrassing? Oh, no longer! Crowdfunding platforms like Kickstarter and Indiegogo have made begging for money a noble endeavor.
How it works: You make a good case. Other people give you money. Sometimes they want something in return; sometimes they’re just nice.
The secret is to stand out in a crowd of other companies requesting funds as well. Your tales of woe regarding how you need a new delivery van most likely won’t fly. But that handcrafted, sustainable, blockchain-based cat food company? That’s what we’re interested in!
One of my friends raised $50,000 for his hot sauce company doing this. How did he manage it? He named a heat level after every major benefactor. The “Barbara’s Inferno” allegedly reduces grown men to tears.
2. Peer-to-Peer Lending: Borrowing from Your Rich Uncle (But It’s Not Your Uncle)
P2P lending pairs you up with people who have the means to lend. Sites such as Funding Circle and Prosper cut out the stuffy bank intermediary.
Why it works: Lower overhead means lower rates for you. And, also, these lenders can risk lending to you even if your credit rating resembles your bowling average.
Just remember – these are human beings lending you real money. They’re going to want it back. With interest. So maybe don’t spend it all on that new break room espresso machine. Though we both know you probably will anyway.
3. Invoice Factoring: Turning Your IOUs Into Cold, Hard Cash
Got customers who pay you. at some point in the future? Invoice factoring lets you turn those unpaid invoices into cash from a company that pays you most of the money upfront.
It works like this:
- You: “Hey factor company, I’ve got $10,000 in outstanding invoices.”
- Them: “Sweet, here’s $9,000 now.”
- You: “But where’s the other $1,000?”
- Them: “That’s our fee, buddy.”
Yes, it’s expensive. But every now and then having money right now is preferable to having a bit more money later. Just like indulging in the donut today is preferable to being slightly less fat next day.
4. Merchant Cash Advances: The Fast Food Of Business Financing
Emergency cash needed? Merchant cash advances give you a sum of money upfront in exchange for a percentage of your future sales.
The good news: Very fast approval, even with bad credit.
The ugly: Ridiculously expensive. We’re talking APRs that’ll make a loan shark blush.
It’s basically the fiscal equivalent of buying the entire left side of the menu at 2 AM after a few drinks. It’s awesome at the moment, sucks the morning after.
Use only in emergencies. Like, “my-only-delivery-truck-just-exploded” emergencies, not “I-want-to-remodel-the-lobby” emergencies.
5. Equipment Financing: Taking out a Loan Specifically For That Expensive Thingamajig
Occasionally you have to have a piece of equipment. Like that $30,000 commercial mixer that will change your bakery’s life. Equipment financing allows you to pay that off over time.
How it differs from traditional loans: The equipment itself is used as collateral. In case you can’t make payments, they take the mixer. Which would be tragic because you’ve likely already named it by then.
The approval process becomes less challenging as the lender is extremely sure about where their money is going. Compared to when you tell the bank that you need a “business loan” and they think you’re plunging into it like Scrooge McDuck.
6. Business Credit Cards: Plastic Fantastic (Until It’s Not)
Business credit cards can be an amazingly great source of financing. They offer 0% intro rates, cash back, and points to use on business trips.
Let it not be the minimum payment trap, however. That’s how they do you in. One day you’re charging some office supplies, the next you’re in debt for $30,000 and naming your child Elvis and thinking about living in Belize.
I used my business card on everything, pay it off monthly, and the points paid for my latest conference travel. The free hotel breakfast alone was worth it. There is nothing better than rubbery eggs and stale pastry for free!
7. Angel Investors: Like Sharks, But With Wings
Angel investors are rich folks who want to invest in good small companies. They are not like venture capitalists who demand that you reveal your 10-year plan for global domination. Angels tend to invest on their gut instinct about you and your project.
But the catch is that they desire ownership. Sometimes large portions of it. And opinions. Lots and lots of opinions.
Angels are hard to come by. Network frantically. Join entrepreneur groups. Pitch at pitch events. Or just sit in upscale coffee houses and loudly expound your business plan until some guy with a pricey-looking suit comes over to you. That last strategy has a surprisingly high success rate in certain neighborhoods.
Get Creative or Go Home
Financing a small business today requires creativity, persistence, and occasionally a very thick hide. Don’t have only one option in mind – the smartest entrepreneurs will assemble financing from multiple sources.
Remember, all successful entrepreneurs have a horror story about how they almost went broke. The difference between success and failure often comes down to who managed to scrounge up money creatively at their time of need.
So the next time the bank tells you no, don’t quit. Smile, thank them for their time, and then go try one of these alternatives. Your future self (and your future accountant) will thank you.
And if all else doesn’t work out? There’s always the “Bank of Mom and Dad.” Just have your ears ready for the “I told you so” lecture when you strike gold. That is a small price to pay for success, n’est-ce pas?