10 Business Financing Ideas

Starting and growing a business can bump into cash flow or expansion funding challenges. Debt is perfectly acceptable if used properly in meeting the needs of a business. Here are some ideas for funding your businessi.

# 1. Work with a bank – While a bank can have more strict lending requirements, you can often get a lower interest rate to justify jumping through their hoops. Often community banks are eager to lend money to a local business in their community, though you will have to qualify to their standards.

# 2. Credit cards – Using credit cards should not be the first place you turn for funding, but they can be a good choice in some circumstances. What you want to avoid is getting into a cash flow situation that forces only making the minimum payment amount. This makes paying it off a costly and very long-term commitment. Judicial use of credit cards can get you through a cash flow crunch, but it should not be a habit.

# 3. Factoring – If your business has receivables in the normal course of business, factoring could be an option for funding. Factoring involves selling your receivables at a discount to a factoring company for immediate cash. Fees and the amount of the discount are high, so factoring should only be used when necessary. Companies most likely to use it are those that have long periods between orders and payment that are about production and delivery rather than slow pays.

# 4. Crowdfunding – Crowdfunding is a good resource for financing projects rather than long-term business loans. Crowdfunding websites allow businesses to get funding in small increments from many investors. Generally, you set a goal and a timeframe and your investors, often family, friends, and business acquaintances will invest small sums to get you to the finish line. The borrower businesses usually offer some incentive for the investment, as it is not for equity in the business. The incentive could be a free product or prototype product or service.

# 5. Borrow from your retirement account – Some retirement accounts, notably many 401(k) accounts, will allow borrowing from the account. If you have a large chunk of money in one, it is tempting to access it when the IRS allows borrowing without penalty. However, even if you pay it back, while it is out of the account it is not growing tax free in the account.

# 6. Take advantage of the SBA loan – The small business administration has a number of programs designed to help small businesses to access funding. Some are loans guaranteed by the SBA to incentivize banks to lend due to lower risk. Because these loans are designed for businesses that cannot get funding elsewhere, you turn to the SBA after you have applied to other funding sources like banks and been turned down. Your company must conform to the government definition of a small business, and you must apply to an SBA approved lender.

# 7. Find an angel investor – Angel investors are seeking opportunities for equity in startups and young companies that have the potential of rapid growth to grow their equity. You must sell your potential to the investor, proving the likelihood of their investment growing quickly with high profits. Innovative products or services that are the first in their niche are often attractive to angel investors.

# 8. Family and friends – Often startups are funded by borrowing from friends and family. This can be successful, particularly if you pay them back in a timely manner with interest. However, making creditors out of family can be risky. The biggest mistake you can make is usually approaching them without a firm business plan. Treat the process much the same as you would with a bank in order to show your family and friends that their investment is a wise one.

# 9. Get a microloan – A microloan is a loan usually between $500 and $35,000. In this dollar range, most commercial banks are not interested, as their costs of lending are high and the returns are low in comparison. There are specialized micro lenders that make these loans, offer with less documentation and fewer hoops to jump through. They are usually non-profit organizations, but their more flexible qualification requirements carry a higher interest rate in most cases.

#10. A future earnings pledge – A young entrepreneur with high goals can bet on their future earnings and use an online marketplace like the Thrust Fund for funding. The entrepreneur, in exchange for the funding, offers to pledge a small percentage of their future lifetime earnings in exchange for funding. This is a new concept and not yet tested in court for legality, but it is being used by some to get the funding they need.

The takeaway here is that there are many ways to get the funding you need to start or grow your small business. If you cannot get bank lending, one or more of these innovative approaches may get you the money you need.

i 10 Ways to Finance Your Business, Inc.com


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