Financing Options For Small Businesses That Bypass Banks » BusinessMan Talk (2024)

Starting your own company is quite a big step to take, it is daunting at times but also rewarding at the same time. For a business to succeed you need to have a strategic business plan which will be the main core of your business. The catch is money here, as starting a business on your needs investment, and you would face difficulty if you have poor credit. You can opt for a business loan as no minimum credit score is necessary for that.

However traditional lenders usually have a minimum acceptable range. In case of a low credit score without any presence of collateral, you can opt for an alternate loan option. In this blog, you will get to know about business funding options, alternate loan options, and their benefits. Not only that you will also get to know about the finance option which would prove beneficial to your business.

Financing options for business as an alternative to traditional banks

If you are not able to get a bank loan for your business, unfortunately, don’t worry as there are alternate finance options as well as lenders available to meet your financial needs. Below mentioned are some of the funding options for small businesses and startups.

1. Community Development Finance Institutions

There are plenty of Community development finance institutions(CDFI) available all over the country that take the initiative to help small business owners on reasonable terms by financing their business in the form of loans. Due to low credit scores, there is a multitude of business owners whose loan applications get rejected by the bank.

CDFI also look at credit score but from a different perspective, they focus on borrowers who have been fiscally responsible, but they also consider others too on certain terms as anyone can suffer from a money crunch on job loss or serious medical condition in the family. They don’t ask for that much collateral like banks as other things can compensate for the collateral.

2. Venture Capitalists

They are a group of outsides who takes a part of your business as owner in exchange for financing the business. This can be considered a good option for those who lack collateral to serve banks or other lenders.

This has other benefits too. Other than the financial benefits which are obtained from them, working with them can give you plenty of industrial knowledge which would sharpen your business skills. Not only that through them you can get to make a great connection in business which will be beneficial for you.

As you know connections are always important, especially in business. Many entrepreneurs lack the skills required to operate a business even though they might manage to earn a good income but with venture capitalists, you can gain more. In addition, these business advisors can help your small business.

3. Partner Financing

Partner Financing is similar to the venture capitalist. The difference lies in the fact that in partner financing there will be another strategic financing partner who would have special access to your products in exchange for financing your business, staff, and ultimate sale and distribution rights instead of a loan.

In partner financing, it is more of an equity sale where the strategic financing partner sometimes demands royalty-based services in which the partner gets a piece of each product sold.

It is a good option as the company with which you are tying up is eventually going to be a large business or an industry of your desirable business choice.

The larger company would have marketing programming, sales persons as well as relevant customers and if your business niche fits compatibly with those then your business will be highly benefitted or they will lose the awaiting incentive which would compensate for the loss.

4. Angel Investors

Angel investors are often mistaken for venture capitalists whereas there is a striking difference between both of them that venture capitalists deal by trading equity in exchange for capital but the angel investors would invest in the early stage of small business the outcome of which may not be as per standard and expectation of venture capitalist.

Angel investors are also helpful for business financing similar to VC but on a more personal level comparatively. In addition to financing your business, they also guide you with your business niche. There is no point in borrowing money for losing ultimately. Hence these experienced people can help you save tons of money concurrently help you in growing your business.

5. Invoice Financing or Factoring

Invoice financing also termed factoring acts as the pay gap, in this a service provider fronts the money on the outstanding bank account which compensates for the delay in payment from customers and retailers. This way the cash flow continues to ensure the supply and sale of products.

In closing the pay gap ultimately the company can opt for taking on new projects. Their goal is to fund the small business owners as well as the hiring of the staff required for the business by ensuring cash flow steadily.

6. Crowdfunding

Platforms such as Indiegogo and Kickstarter provide financing opportunities for small business owners. The platform function by allowing small business owners to pool small investments from multiple investors instead of relying on a single business owner.

If you are an entrepreneur then it would not be a smart move to spend your investing options or even increase the risk of investing in your business in this primary period.

Through crowd funding you can raise the necessary fund through the developmental phase and in the meantime you can get ready to pitch the investors about your business niche.

7. Grant

Business niches related to science or research are eligible to sustain grants from the government. The U.S. small business administration provides necessary grants through the small business technology transfer programs and small business innovation research. However, you will be responsible for meeting federal research and development goals on receiving the grant.

Wrapping up
The above-mentioned tips can be applied as an alternative to bank loans or vice-versa. Starting your own business and becoming an entrepreneur is a long journey to walk on so make sure you choose the right and suitable financing options which would bring prosperity to your business. You can also hire a tax accountant for managing your taxes. You can check on best-small-business-tax-accountants-in-Melbourne-Sydney.