Small Business Financing TipsLinda Jenkins, December 26 2014
You're not alone. According to Forbes, the first stop for most small business owners when trying to finance a business is their local bank, but only about 30% actually receive funding this way. Most turn to friends and family for the funding they need. If this is the case, there must be a huge number of business owners out there that are not aware of the new funding opportunities available through these online resources:
Alternative Online Loans
Online lenders are making a big splash and offering better rates and faster and easier application reviews than traditional banks. Although around since 2006, online lenders have really become a force in small business lending over the last two years. For example, if you run an online store on Amazon, eBay, Etsy, Shopify or Yahoo, then get a quote from a source that understands your unique needs. Read about how qualifying with this online lender can help you grow on your terms.
Peer to Peer Lending
Peer-to-peer lending, sometimes abbreviated as P2PL, allows business owners to get loans from unrelated individuals, or "peers", without going through traditional financial intermediaries such as banks. Peer to peer lending has flourished in the United States since 2006. Prosper.com is the longest-running example of this method of financing. Essentially, business owners post online loan listings and individual lenders review them. Loan requests are generally ranked by risk which often correlates with the owner's repayment history on other loans. Once this process is complete, borrowers make fixed monthly payments and lenders receive a portion of those payments directly into their account.
Peer to peer lending often results in a higher percentage of business owners receiving capital at a lower fixed rate. This industry also fills a gap in the lending community as most banks cannot make financial sense out of lending smaller amounts (ie., $10,000 or less). Business owners, especially those that are in business for the first time, really need to take advantage of this win-win situation. P2PL definitely provides a strong alternative source of capital for your business. Get the money you need while also shielding family members from risk and avoiding unproductive applications at the bank.
For business owners willing to give up a percentage of ownership in their company, equity-based crowdfunding is a great opportunity. Business owners create online listings seeking investors and exchange a percentage of ownership in their business for the capital they need. Investors on these sites generally seek-out highly innovative companies, similar to what a venture capital firm would look for in an investment. Crowdfunder.com is an excellent source of this type of funding.
If you are unwilling to give up any ownership, try rewards-based crowdfunding. This amounts to online fundraising for businesses where large numbers of people contribute to your capital request and only expect you to make good on the reward you established in your profile. For example, you might offer free samples of your product or a deep discount on your service to individuals that successfully fund your request. Visit Fundable.com for a great resource that offers both rewards-based and equity-based crowdfunding campaigns for seed stage businesses in the US.
Read more about creative financing solutions.