Helping finance the backbone of our country is a smart strategy, but most banks won’t touch small businesses because they don’t see the loans as worth their time. But in the last few decades, new financing models have arisen and are even replacing banks as the go-to source for financing a small business.
Sometimes cutting costs in your business won’t give you the capital you need, and that’s usually the time business owners apply for a loan. If you are looking for assistance but don’t need to tap VCs or angel investors for millions of dollars, these 10 financing options can help you take a new business idea to the next level or scale up and expand an existing business:
For a small business owner that may need to cover gaps in customer payments and improve their cash flow, Fundbox is dedicated to helping with that aspect of funding. It works with your bookkeeping app to advance payments for outstanding invoices, which is helpful for small business owners like freelancers, contractors, and service providers who often struggle with getting their invoices paid in a timely manner. The other benefit to an invoice finance company like Fundbox is it assists those of you that may not use, or have no access to, business credit cards. The company does not buy invoices or charge fees so you can use Fundbox to stop chasing down debt, offer better invoice payment terms, and focus on growing your customer base.
Fundera does the work for you. Modeled off a LendingTree format in which lenders competed for your mortgage business, Fundera has a network of certified lenders that compete to offer you small business loans. There are no fees hidden in the funding offers, plus you only have one application to fill out and a single point of contact to complete the loan process. This allows you to view multiple types of loans that may work for your small business, including lines of credit, invoice financing, Small Business Administration (SBA) loans, short-term loans, traditional term loans, and equipment financing.
SBA Microloan Program
The U.S. Small Business Administration (SBA) offers small businesses the microloan program, which offers loans up to $50,000 although the typical loan is under $15,000. The SBA has partnered with certain intermediary lenders to handle these loans and have specific lending and credit requirements, including collateral and personal guarantees. The microloan program is intended to help small business owners get financing for working capital, equipment, machinery, furniture, and inventory. However, the money cannot be used for real estate or existing debts. Repayment terms are typically within six years at rates between 8% and 13%.
While there are numerous crowdfunding platforms now available, many of them are focused on a specific niche area, such as music, film, or books. Kickstarter covers a wide array of business types, including those looking to develop a product or idea. The crowdfunding platform also is geared toward existing small businesses that show some signs of experience and viability. This helps attract people to your pitch and increases the potential that you will reach your fundraising goal. There are transaction costs involved and you often have to provide some type of incentive or return to those that have contributed funds.
Similar to Kickstarter in that it is a crowdfunding platform, Fundable primarily focuses on raising capital for the small business owner looking to build their business but who may not be the right fit for a venture capitalist firm. On Fundable, you can join 377,000 other start-ups that have used the platform to get in front of more than 23,000 investors and funding sources for as little as $1,000 or in the millions. Fundraising campaigns can be reward-based like those on Kickstarter, or you can do an equity-based campaign for shares or stake in your small business.
Kabbage has reported they have already helped more than 100,000 small business owners and funded $550 million in small business loans and lines of credit. The company focuses on business performance data versus credit reports to make its funding decisions. The line of credit option may particularly appeal to you, as a small business owner, because you only use what you need and can draw on it daily or as needed to fund all types of purchases that are intended to grow your business. This infusion of cash can be delivered directly into your business bank account or your PayPal account for easy and quick access. There are no requirements about what aspect of your business you plan to use the funds for because Kabbage assumes you know your business better than they do.
This online marketplace is for small businesses to find and connect with investors that are specifically looking to offer unsecured small business loans as well as loans for consumers. Lending Club has a wide variety of loan types with an array of terms and credit characteristics, so even a small business owner with less than perfect credit may be able to find an investor willing to provide them with some type of financing. In business since 2006, Lending Club has helped all types of small businesses and consumers as an online community source for funding.
Since 2007, OnDeck Capital has been helping small businesses with all types of loans and lines of credit so they can add staff, purchase supplies and inventory, manage cash flow, and expand their operations. You benefit from the technology they use to evaluate your business performance, rather than your personal credit, plus they provide decisions in minutes and ofter funds via ACH or wire transfer in as little as 24 hours. The business lines of credit are up to $20,000 while the business term loans go up to $250,000. The company has proven to have helped all types of small businesses around the country with their online approval and funding platform.
Friends and Family
Sometimes all you need is just a bridge loan to get you from here to there, including buying that one piece of equipment to manufacture your product at a higher volume or launch a marketing campaign. Instead of opting for some of these small loan companies that charge extremely high interest rates, it might be a good time to ask family members and friends for a small loan. You can also draw up paperwork that includes terms that will ensure borrowing a small amount from them will not adversely impact your relationship. They want to see you succeed, and more often than not believe in what you are doing. Unlike those outside your circle, they know you and what you are capable of doing so they will more readily support you. Plus, when you pay them back and they see it has helped your small business, they will be there to celebrate with you.
Grants are free money, so this is definitely an option for certain small businesses to consider. Just know that they come with a lot of paperwork and expectations, so be sure to do your research and understand the process for what can be a time-consuming process. However, it can pay off for a small business. For example, Small Business Innovation Research (SBIR) offers grants to small businesses that are focused on technology and innovation. This program is meant to foster Federal research as well as provide a way for the U.S. to become more competitive in technology and innovation on the world stage. The program is considered highly competitive but worth considering if you want to aim for a grant. There are numerous other grant programs for small businesses that are not focused on technology, including those linked to philanthropic organizations.
There are tons of finance options for your small business that don’t rely on traditional financing channels. It’s up to you to determine financing needs, which terms are realistic for your business, and what platform facilitates cash flow, business growth, and revenue generation.