Start-ups and small businesses often find themselves strapped for cash. In fact, up to 73% of small businesses require some form of financing annually, according to the U.S. Small Business Administration
. Although traditional bank loans can provide a small business with the much-needed cash injection needed to make sound investments, it is not always the most viable financing option. Conventional lenders such as banks do not lend money to borrowers that sport a weak business profile or low credit score. They are also slow to approve and reject loan applications and are not in the business of providing small loans
. Thankfully, there are a number of alternative finance options that may be better suited to small business operators.
Merchant cash advances give business owners a lump sum upfront
Merchant cash advances provide a small business with an innovative way in which to obtain a lump sum of money which can be utilized for investment purposes
. The business owner will receive the finance from a merchant cash advance provider and repay it with a predetermined percentage of their credit card sales
. This makes this method of finance acquisition particularly appealing to businesses that boast high credit card sale volumes. Although a merchant cash advance provides you with fast access to cash and flexible repayment terms, you can expect an APR of anywhere between 70% and 200%. It is also important to note that, while you will be provided with the money needed to finance your investment, you will be sacrificing a percentage of your daily revenue, which may hinder your business growth.
Initiate a crowdfunding campaign
Crowdfunding is becoming increasingly popular
among start-ups and established businesses in need of money. Although it is very possible to raise the funds you require through platforms such as GoFundMe, CircleUp and LendingClub, a successful campaign does require a sound strategy. When trying to find the best crowdfunding platform for your business, there are a number of things to keep in mind. Some platforms make use of an all-or-nothing approach through which you will only receive your money once your target has been reached. Others will take processing fees from each individual contribution, as well as a relatively small percentage of the total funds raised. As a business owner, you will also have to decide whether equity crowdfunding or rewards-based crowdfunding will benefit your organization best.
Give microfinancing serious consideration
If your anticipated investments are relatively small, you can make use of microfinancing to secure a loan of between $5,000 and $50,000. According to the Small Business Association (SBA) the average microloan in the USA is $13,000. Although microfinancing may, in essence, just be a down-scaled version of a traditional loan, it does boast various benefits. Not only do microloans tend to be approved significantly faster, but they are also easier to pay off. On the downside, a microloan may not be sufficient to cover all your projected investments, and it will also typically have shorter payback terms attached to it.
Many small businesses will have the need to secure finance for investment purposes and business growth. Although traditional bank loans may suffice, it is always good to look at other options before making any long-term decisions.