8 Alternative Funding Options for Small Businesses

8 Funding Options for Small Businesses

Funding for businesses is changing, and the current state of the economy can make obtaining loans seem like a nightmare. If you’re struggling to get a bank loan, or you don’t like your current options, there are alternatives to traditional loans available.

What is alternative funding?

Alternative funding is gaining financing for your company outside of traditional bank loans to gain capital. Many of these alternative sources exist online, and you may consider pursuing this funding route if you’ve been turned down for loans in the past, have poor credit, or are unsure of how much funding you really need for your business.

But understanding and navigating your alternative funding options can be complicated. To help you find the best funding to fit your needs, read on for the top 8 alternative financing options.

1. Traditional loans

While you may be looking to steer clear of traditional bank loans, there are still more attractive options to gain capital from banks. SBA and small business lending funds, for example, act as alternatives to typical bank loans. These loans and funds are specifically for small businesses and entrepreneurs. Typically, they also offer more attractive terms and less severe penalties which can be beneficial for startups. It is important that you have a solid business plan in place before applying.

2. Grants

A grant is financial assistance awarded by the federal, state, or local government. It is a specific amount of money given to an applicant who shows a promising chance of success. Grants are much more competitive to receive and oftentimes require specific circumstances. If you’re pursuing a grant, government and SBA options are likely the most common but difficult routes to go. However, there are resources like NAV and the National Association for the Self-Employed that can help you discover more open options to help make a grant easier to acquire.

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3. Fintech

Financial technology lenders could serve as a beneficial alternative funding route. These lenders typically provide smaller loans, credit options, lower barriers to entry, and function solely online. Some notable options include Kabbage and PayPal. Each option has its own set of benefits and limitations, which can mean fewer funds available, being tied to a specific lender long-term, or even higher interest rates. With fintech, companies can benefit from expanding their finance options, automated accounting, online payments, and more.

4. Crowdfunding

Crowdfunding is typically beneficial for product launches. This avenue of financing is like launching a promo landing page to gauge interest. Crowdfunding has several benefits, but if you’re interested in going this route it’s important to note that each crowdfunding site differs. Some only allow funding for a limited time, some require you to meet your goal to receive any funds, and others serve as long-term community sites. Be sure to read the fine print to really understand that you may get all or nothing if going this route.

5. Peer-to-Peer lending

Peer-to-peer lending essentially allows individual people to borrow and lend money to and from one another. Think of it as a combination of crowdfunding, loans, and angel investment. There are several online platforms that act as pitching services to connect you with investors for funds and insight or reach a community of like-minded individuals interested in investing. This form of funding tends to be more useful for established businesses that are looking to grow and typically requires a thorough pitch deck to showcase.

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6. Venture Capital and Angel Investment

Venture capital or angel investments are individuals or firms that are willing to invest funds into startups. They are typically looking for a return or a share of your business. This kind of funding is applicable for specific industries and usually requires your business to be somewhat disruptive and primed for growth. If this route seems like a good option for you, then a solid business plan and pitch deck are vital.

7. Pitch competitions

Pitch competitions are really primed for startups or those working within an incubator. Pitch competitions typically require you to be located within a specific region, be at a specific revenue stage, or be part of a cohort of entrepreneurs. This form of funding is particularly beneficial for those with an established business looking to grow and is a great way to gain exposure for your business. Depending on where you’re located, there are often regional or community-driven pitch contests that occur from time-to-time.

8. Bootstrapping

Bootstrapping basically consists of doing everything you can to acquire funding. While all of the options listed above are still viable, you will likely find yourself doing some sort of bootstrapping to prepare your business financially. Consider funding from friends and family, service or product presales, using your savings or selling assets, and even looking into lines of credit. Bootstrapping encourages lean operations and can help you avoid taking out too much funding early on.

No matter the funding option you choose, it’s important to have a solid business plan to better your chances of acquiring funds.

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You can download a professional and impressive business plan for free with our Business Plan Template. And if you’re looking for a simpler method that can help you with business planning, pitching, budgeting, forecasting, and performance tracking for your business, you may want to check out LivePlan.

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