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Starting my business was the most daunting process but later, the painful efforts turned out to be very rewarding. Beforehand, I used to think that a business plan is the most crucial element when starting a business. I was wrong—financing the business is the main element that every business owner should carefully consider.
Financing my business was the hardest thing I have ever gone through. I was low on funds and the traditional lenders I approached had a painfully strict threshold that they considered before approving the loans, I desperately searched around for business line of credit to start financing various aspects of my new business. Anyone who has a low credit score or no collateral to offer the lenders should consider several other alternatives. The following are some smart alternative options to startup financing that I have used over the years while financing my business.
Crowdfunding
This is a platform that gives financial boosts to startups and small businesses. The platform encourages businesses to pool small investments for several investors instead of just sourcing from a single source of investment. However, I would advise anyone seeking to source investments from these sources to carefully read through the agreement before choosing the right platform to source investment. Some of the venues I have researched have a processing fee, while others will require the businesses to raise their top financial goal and keep all the money raised.
Grants
Businesses that focus on science and research often get financing from the government. To qualify for these grants from the government, a business must meet the federal research and development goals. The company should also have a very high potential of being commercialized.
Merchant Cash Advances
This is where the financial provider gives an extension to a lump sum amount of the financing. The financial provider then buys the rights to a small portion of the business’s credit and debit card sales. Although it is an easy option, I would advise any business owner to consider this as the last resort because they have very high expenses.
Convertible Debt
This is the type of debt in a business taken from one investor or several of them. There is usually an agreement to convert the debt and give equity to the investors in the future. This type of financing is suitable for startups and small businesses. However, I would advise anyone considering using this as a funding method to be comfortable because they will be ceding some control of the company to the investors.
Invoice Financing
Also referred to as factoring, this is a type of financing where the provider will front the business owner with money on their outstanding account receivables. For this, the business owner is supposed to pay the loan once customers settle their bills. This is the best type of financing for any business. The business will always have the cash flow it requires to be operational as they wait for the clients to clear outstanding invoices.
Partner Financing
In this type of business financing, another player in the industry funds the business. The funding is exchanged for unique and specific access to the company’s products, staff, rights to distribute the products, and an ultimate sale or a combination of the above.
I find this particular financing model a great alternative. This is because the companies that grant this kind of partnership are usually more prominent and more established. The companies might be in a similar industry or be in a sector that has a direct interest in the kind of products the company deals with.
The larger company almost always joins the partnership with many relevant customers, a marketing program, and several trained salespeople. This comes as an advantage to the small company as it benefits from the money offered and the other services that come with the partnership.
You may also like: 5 Tips to Help Secure Funding for a New Business
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