One of the biggest problems that entrepreneurs and small business owners face is securing financing to operate their business. As a matter of fact, underfunding is a major reason why a lot of new businesses fail.
The most common ways of getting funding for your business is through a traditional bank loan, personal savings, and loans from family and friends. But what happens if these options are not available to you? Most start-up businesses do not qualify for traditional bank loans. You may have exhausted all of your personal savings. Sometimes your family and friends, no matter how much they love you, are just not willing to invest.
So what other financing alternatives are left for you to pursue? Fortunately, there are some other financing options available to you.
Alternatives To Traditional Financing Methods
Here are some places that you can find money for your business.
Peer-To-Peer Lending Sites (P2P Lending)
This is a fairly new, yet effective, concept. Peer-To-Peer lending or P2P lending sites brings together individual investors and people who need cash. Essentially, the site acts as an intermediary, sort of like a loan broker.
Basically, the person that needs a loan will put in a proposal or business plan along with how much they need and the amount of interest that they are willing to pay. The individual investors will review the proposal and if it meets their loan requirements they will invest.
The beauty of the concept is that individual investors can invest as little as $25 to fund the loan. Let’s say that you needed $1000. Instead of one investor giving you $1000, you will have 40 investors giving you $25.
Here are some companies that do peer-to-peer lending.
- Lending Club
- Crowd Cube (UK Based)
- P2P Capital Markets (Canada Based)
Angel Investing Sites
Many people tell you to find an angel investor, but they never seem to be able to tell you where to find them. Unlike the individual investors that you will find on the P2P lending sites, angels tend to be individuals with a lot of money. In addition to that, most angel investors want a piece of the company or an equity percentage. If you want to get an idea of what angel investor looks like, then check out the TV show Shark Tank.
Angel investors usually tend to favor certain industries or business models over others. With that said if you see an angel saying that they are only interested in commercial real estate deals, then you do not want to send your investment proposal for a software company.
Another thing is that your investment proposal and business plans need to be clear and to the point. You should not submit a 100 page business plan full of pro forma figures. Also make sure that you include an exit strategy because angels usually want to cash out after the company is established.
Here are some sites where to can find angel investors.
Crowd Funding or Micro Lending Sites
The sites are similar to P2P Lending sites. The primary difference is that you pay back your investors with products and perks versus cash plus interest. These sites are very popular in the creative artist community. Documentary filmmakers, musicians, fashion designers all use these sites to raise funding.
Here are two crowd funding sites that are popular among creative artists.
There is another site that fits the mold of Kickstarter and Indie Go Go, but they have added a slight twist. The name of the site is called SmallKnot.com. Basically, this site allows individuals to fund small community businesses in exchange for discounts and free products or services.
SmallKnot only works exclusively with independently owned, small individual businesses. They also will not work with businesses that are franchised.
So there you have it three other options to help you fund your business. If know a friend or family member in need of financing for their business please share this article on Facebook or Twitter.