6 Alternative Funding Options that May Be Right for your Small Business

02 Feb, 2016 / Comments: Comments Off on 6 Alternative Funding Options that May Be Right for your Small Business / By

Funding a small business does not have to mean large business loans and extremely high interest rates. There are many ways you can get the money you need without stepping foot in a bank or filling out an application. The key is to be creative and think outside of the box. Look at the resources around you and determine how you can use them to your advantage to get the funds necessary to get up and running or even to keep your business going.


1.  Angels Come from Everywhere

Angel investors are people that invest in your business, typically helping you start up in exchange for a financial piece of your business. They are a silent partner, which means you still make all of the decisions and run your business as you see fit. It is in the unwritten code of conduct, however, that you run the business as financially responsible as possible in order to repay the angel investor. The best way to get this type of funding is through word-of-mouth. Oftentimes, people that let friends and family know about their business and their need for help will get help from a “friend of a friend” type relationship. It’s all about networking.


2.  Grants are not Loans

If you want to steer clear of any type of loan, grants are the perfect option. You do not need to repay them and there are a variety of them available. The key to obtaining the money from a grant is research; they are not going to jump out at you. You can do the research online yourself by searching for key things, such as grants for minorities, women, or the specific industry your business will serve. There are grants available from many areas including the government, non-profit organizations, and private individuals.


3.  Partner Up

Not everyone is built for a partnership, but if you have a great idea and your friend/family member has the capital, it could be the ideal situation. Make sure to iron out all of the details up front and have everything in writing including who will make what decisions and how the money should be utilized. Using a reputable lawyer can help ensure that there are no loose ends that cause trouble down the road, enabling you and your partner to have a successful business relationship.


4.  Get Online for Financing

If you need a loan, but the traditional bank route is not what you need or want, consider searching online. There are many places to apply for funding that are not your traditional bank loan. Crowdfunding, peer-to-peer lending, and merchant cash lenders are just a few of the options. Crowdfunding allows complete strangers to donate money to your business start-up; peer-to-peer lending enables you to get loans that get repaid from peers; and merchant cash lenders give you the cash you need in exchange for access to your future profits.


5.  Venture Capitalists

Venture capitalists are individuals with the money to help fund businesses. The difference between this and angel investors, however, is the voice the Venture Capitalist has in your business. He will not be a silent partner – he is there to protect his investment. He will help guide you in the direction he assumes will make your business more profitable as his investment in the company is at stake.


6.  Money from Vendors

You are supposed to pay your vendors for the supplies or services they provide you to get up and running, but if you are able to negotiate the terms with them, you can obtain longer access to your immediate funds. For example, instead of 30 day terms, ask for an extension to 60 or 90 days to pay your bills with the vendor. This gives you time to accumulate more cash to keep the business rolling while not paying the consequences of late payments to your vendors.

Alternative funding for your business is at your fingertips – you just have to be proactive in finding them. Talk with friends and family as well as those in the business world to see what others think. Word-of-mouth is the best way to get ideas and to come across others that are willing or able to help you.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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