As a small business owner, there are numerous reasons why you might need a commercial bank loan. You might need one because you want to buy real estate to expand your business operations, because you want to buy equipment, or because you want to buy inventory. You may also need a loan to increase working capital for your day-to-day operations.
Regardless of the reason, your first instinct might be to seek a traditional bank loan. While this is a perfectly good option, but you do have other options available if you don’t get approved for a loan or line of credit. One of the more promising ways to get the money you need is through an alternative financing lender.
Here are four other ways to finance your business other than securing traditional financing:
A new circle of online lenders is offering small business owners like you an alternative to traditional loans. Referred to as marketplace or peer-to-peer lenders. As an example, LendingClub may be perfectly happy to give you the money you need if you have been in business for at least a year, earned a minimum of $50,000 in annual sales, and own at least 20% of the business. Naturally, you will also need to have fair to good credit and not have had any recent tax liens or bankruptcies.
Another way that you can get the money you need is through crowdfunding, the practice of raising money from a large number of individuals. Arranged via the Internet through popular websites like Kickstarter or Indiegogo, crowdfunding is another highly effective way of getting alternative financing.
Essentially what you are doing is preselling your business idea if it is a unique product or service. Early stage ideas do well with crowdfunding particularly if the business idea has a unique founder’s story and appeals to a mass consumer market.
Some ways to pitch your appealing idea include the use of excellent copywritten content, attention-grabbing graphics, and an interest-generating video.
You may be able to get the money you need via grant-funding. You will need to research both the public and the private sector for this type of funding. Federal, state, and local governments are the primary source of funding from the public sector while foundations and corporations are the primary sources of funding from the private sector.
You will improve your chance of success by following these four basic guidelines:
Seek permission. Some funders are not open to receiving a grant proposal out of the blue. You may first need to ask permission to submit your request for a grant.
Research the best approach. There is no uniform structure to approach a funder. Each organization has its own approach to how it should be contacted and the document that you need to submit.
Recognize that timing makes a difference. Not all grant-funding opportunities are always open. In the event that you come across some expired notices, you can contact the grant organization to see if the opportunity will be available in the future.
Stay organized when applying to multiple funders. Since each funder has different preferences and rules, it can be easy to get confused about how to tailor your proposals. Use a spreadsheet to plot all your information so that you can stay on top of all the relevant application rules and deadlines.
Besides applying for money through organizations, you can also obtain money for your business needs through angel investors. According to Entrepreneur, these are individuals with a high net worth of at least a $1 million. Besides having a net worth of a million, The Securities Exchange Commission (SEC) defines an accredited investor as someone who earns $200,000 a year. Often these individuals tend to be well-paid professionals like doctors and lawyers or highly successful business people. In return for their investment, you must sell them equity in your company and file the investment with the SEC. Although Angel investors are comfortable with amounts around half-a-million, you can also get funding from angel groups if you need a million or more.
In closing, it’s important to keep in mind that you have many choices when it comes to getting a business loan. In fact, you may prefer to simply go directly to an alternative financing source since they often provide far more favorable terms and conditions than traditional lenders.