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Alternatives To Bank Loans For Small Business

By Edited Jan 21, 2016 0 0

Bank Loans for Small Business
Credit: http://en.wikipedia.org/wiki/Bank_vault

For many budding entrepreneurs out there it has become increasingly difficult to obtain funding to get your ideas off the ground.  There are a number of factors that have contributed to this but the primary one is the recent  financial crisis.  Banks have become and other financial institutions have become increasingly risk adverse in granting new loans in an effort to reconsolidate after the hit they took at the hands of the crisis.  The irony in this is that it is the times of crisis that require new and innovative areas and solutions to problems in in order to shift the economy from bust to boom.

Should I Shelf My Idea For Now?

Entrepreneurs that are rejected funding by banks can sometimes become despondent and take the risk averse view that perhaps now is not the right time to bring their idea to market.  Maybe the banks are right, if the economy is down then perhaps my target market does not have the available funds to purchase the goods or services that my newly founded company intends to produce.

Unfortunately in many cases the reverse is true. A downturn in the economy produces a variety if opportunities for entrepreneurs to capitalize on ans people are looking for solutions to help save them money or do things more efficiently.  In fact many schools of thought say that this is the best time to enters into the market for certain goods and services as this will be when the demand is at its peak.

What Other Options Are Available?

So you are not going to be able to get finding from the bank so you need to look for other sources of funding.  Traditionally the next step from here is to look for private investors who will supply you with funds in exchange for a stake in your company.  The issue with this is that you are starting a process whereby you are beginning to loose control over the direction and strategy of your company.  Athe investors with a legal percentage of ownership of your company may need to be involved in decision making and the way in which money is spent and their dirediffer greatly from yours.  You will also be beholdent to offer and earn them a return on their investment as quickly as possible which can limit your options as far as re-investing profits towards growing your business. Luckily there is a new form if fund praising which alleviates a lot of these issues which is gaining popularity called crowd sourcing.

What Is Crowdsourcing?

Crowdsourcing is where you present your idea and business plan to a mass audience and they offer a donation in return for the benefit of helping you get your business or venture off the ground.  There are several websites out there that offer this service I will use the example of a custom t-shirt shop to exemplify how the process might work in practice:

1) You decide that you require $20,000 in order to get your business off the ground

2) You post the business plan on one of the crowdsourcing websites so that people are able to evaluate it to see if the idea is something that they would like to see brought to market.

3) You offer several different levels of sponsorship.  An example of this is if a person donates $50 they will receive a company t-shirt and if they donate $100 they will receive a custom t-shirt with their name printed on it.

4) The amount of money that they indicate they are willing to donate is essentially put into escrow

5) If the total amount of donations that are pledged towards your business meets your goal then you will receive the funds less a processing fee and you can get to work creating your business as well as delivering on your promised incentive to your donors.  

6) If you do not meet your funding goal, no transaction takes place and none has to pay anything.

What Are The Benefits Of Crowdsourcing?

There are two main benefits to this method of raising capital as follows:

1) you retain complete control of your business as the donars are not allocated a share of the profits but rather are simply getting behind your business not only to get access to what you are offering as an incentive but often for purely altruistic motivations.  Some people will pledge purely for the satisfaction of knowing that they helped a valuable product or service see the market and help other people.

2) you are building a tribe of devoted advocates by using this method.  Think about it, as mentioned above, many people engage in this process for altruistic purposes.  Once your business is established these people will become your biggest evangelist.  They will tell all of their contacts about the business that they helped get off the ground and hopefully these friends and family members will become your first customers.


In difficult economic times such as we face today we should be vigilant that if we have a good idea that it gets to market and helps change and I roves peoples lives.  If we cannot convince banks and financial intiutions to believe in our idea, if we truly have something that is going to be of benefit, there are people out there that want to help.  We don't have to give our soul to the devil(offer shares in our company) to find these people and they will go out and market your business to their friends and family for free.  Maybe Crowd Sourcing is not for you but it definatly may be something worth considering instead of shelving and forgetting about your brilliant idea.

Crowdsourcing: Why the Power of the Crowd Is Driving the Future of Business
Amazon Price: $15.00 $6.38 Buy Now
(price as of Jan 21, 2016)


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