Small businesses are often starved for capital, yet they’re the least likely to be approved for conventional business loans. Some options simply aren’t available to small businesses, or they may come with a high interest rate due to the perceived risk. Not everyone has the option of selling unused items or borrowing against their retirement plan to fund their new venture, either. However, that doesn’t mean that all hope is lost, and there are options out there if you know where to look. Here are a few small business funding options you probably haven’t considered.
Crowdfunding can be used if you’re trying to raise money for the production of a new product, for instance. It has the side benefit of allowing you to confirm that there is public interest in such a product or promote it while it is still in development. You could use crowdfunding to tap into a large pool of investors or sell your initial product run.
Stated Income Line of Credit
Another thing you could do is look at something like a stated income line of credit. Your stated income line of credit will be more flexible than a traditional lump sum business loan and you’ll be able to draw on it as required.
With a stated income LOC, you only have to pay back the interest on the principal you’ve borrowed to date. The interest rate and loan fees will vary based on your credit score and other factors. One of the biggest benefits of the income line of credit loans is that there is little to no documentation. What matters the most is your revenue.
Formal Loans from Friends and Family
You could raise money by borrowing from family and friends as well. However, you should try to minimize the risk of conflict by having formal loan agreements for the amount borrowed and the repayment terms.
Peer to Peer Lending Sites
Peer to peer lending sites are a viable way for small businesses to raise capital. One reason they didn’t rank higher on our list is because such platforms can have much tougher requirements than many might imagine. Furthermore, the application may approve the loan in hours or days, but it may take longer for individual investors to fund the loan. In fact, they might not fund it at all. The upside is that the peer to peer lending sites don’t require as much documentation as bank loans.
Micro-loans or micro-financing are small, short-term loans with low interest rates. They’re typically used by startups and the self-employed who need a few hundred to a few thousand dollars. These loans may be offered by banks, nonprofits or micro lenders. They tend to have lenient standards and can sometimes cater to specific groups.
Working Capital Loans
Working capital loans are loans secured by your income stream. This is why they’re typically offered by payment platforms. The loanable amount will be based on your annual sales and lenders generally require an account that has been open for several months. Loan repayments will be deducted from every sale.
The benefits of this approach include fast approval and a faster deposit of the funds. Your credit doesn’t really matter, either. However, it will cut into your cash flow, and the interest rate can be higher than you’d pay with other funding options, yet your payments will be low if there is a sales slump.
The right business funding method for your situation will depend on how much money you need, when you need it, and the terms you’re willing to accept. Research the various alternatives so you can find the best one for your growing business.