In recent times, the number of alternative funding options available to small businesses has grown. Here’s our guide to three of the best for you to consider.
If there was one stumbling block that could prevent your small business dream becoming a reality, it’s funding. The vast majority of small businesses require some form of funding to get them off the ground, whether it’s money to spend on a premises, equipment, materials or vehicles – but where does this money come from? In an ideal world you’d have plenty of savings or a generous family member to offer you a loan, but very few aspiring business owners are quite so lucky.
The good news is that in the last few years the number of funding options available to small businesses has grown. Traditional lending streams, like bank overdrafts and loans, have been cut back in the wake of the financial crisis. This has left a funding black hole that has been filled by an innovative range of
funding options. So, whatever type of business you want to open, there should be an appropriate option for you.
Here’s our guide to three of the best alternative funding options for you to consider…
Rather than going cap in hand to the bank, crowdfunding can help you to raise finance by asking a large number of private individuals to provide a small amount of money each. The first step is to upload your pitch to a crowdfunding platform. Individuals then have the opportunity to contribute to businesses they are personally interested in. In return for their investment you can offer product discounts, memberships or even equity in your business.
The (RC) potential benefits of this funding method include:
a. Investor engagement
Crowdfunding can be an effective way to market your business to potential customers before it’s up and running
Rather than going out and finding investors, crowdfunding allows the investors to come to you
c. It’s cheap
There’s no interest to pay on the money you raise
2. Peer-to-peer lending
Peer-to-peer lending removes the traditional lender, such as a bank, from the equation. Rather than borrowing money from a financial institution, you borrow directly from private investors. Peer-to-peer lending platforms do charge a small fee, and just like the banks, different investors will offer different loan terms, amounts and rates of interest.
The potential benefits include:
d. It’s fast
Funds can be available in as little as a week
e. It’s flexible
Loans can be agreed over different repayment periods and for amounts ranging from £1,000 to £25,000
f. You’re more likely to be accepted
Peer-to-peer lenders are less risk averse than the banks
3. Venture capital
Venture capital is a type of funding used by start-up companies and small businesses with long-term growth potential, but which are also high risk. This type of funding is provided by venture capital firms that offer funding in exchange for equity in the business. This type of funding is particularly prevalent in the tech and scientific sectors, where failure rates are high but the rewards for a successful investment can be great.
The potential benefits include:
g. You’re working with experts
Venture capitalists understand that every business hasdifferent needs and should be able to tailor a deal to suit
h. You can raise more money
Venture capital allows you to raise more money than traditional lending streams like a bank loan
i. They can see the bigger picture
Venture capitalists know that most businesses will not make money from day one and are more accepting of this risk than the banks
While these are three of the most popular modern funding options available for your small business, there are alternatives like government grants and asset-based financing that could provide the financial injection you need to drive your business forward.