Securing financing is one of the most pressing issues facing small business owners today. Finding the right funding source for your startup requires due diligence of the financial sector and a review of the finance models available to you.
If your struggling to find funding or don’t know where to start your search, here are a few of the best options you can use to launch your small business.
The Traditional Option – Small Business Loans
This model is typically the starting point for many small business owners. Visiting a financial institution to inquire about a loan has its pros and cons. While banks are desperate to loan money wherever they can, they only do so if you meet their lending criteria.
A bank will ask you for some form of surety or collateral to guarantee the loan. This strategy ensures that they mitigate their risk in the deal. Unfortunately, this leaves you exposed to the risk, and if your business fails, the bank may seize and auction your private property to settle your outstanding debt.
The Faster, Easier Way to Get Your Loan – Small Business Lending Marketplaces
Most small businesses don’t require large sums of capital to get the ball rolling. Small business lending marketplaces offer an attractive financing model, with less risk than a bank loan. Using this type of facility is the fastest, most straightforward method of getting your business funded.
Small business lending marketplaces streamline the application process and connect you with a network of lenders willing to take a chance on the success of your business. To date, small business lending marketplaces have helped entrepreneurs acquire more than $750 million in loans.
Short-Term Credit Can Close a Gap – Business Credit Cards
If you find that your business is facing a short-term cash flow issue, a credit facility can help you through a tight spot while you want for income to clear in your business account. Most banks will require collateral to secure a small business loan, but they’ll happily issue you a credit card without batting an eye.
Take advantage of this option but use it sparingly. It’s easy for entrepreneurs to fall into a spiraling credit trap that further ruins their cash flow position.
Go Private – Angel Investors, VC’s, and Private Equity
If you choose to go this route in sourcing the finance you need, expect to pay a healthy sum to your investor. Private equity, VC, and angel investors are looking to put their money to work for them and achieve the highest return on their investment.
This model may require you to give up equity in your business to the investor, in most cases the individual or company issuing you the loan demand a controlling stake. Giving up ownership is never a strategy you should follow if you don’t have to.
Build it Yourself – Leverage Product Presales
If you’re confident you have a winning product idea, why not launch a presale of your product? Tesla is an excellent example of this strategy. The company takes a non-refundable deposit from their clients for placing an order on any of their electric vehicles. In some instances, clients are prepared to hand over the money, even if it means they have to wait a few years for delivery of their car.
This strategy only works if you have an excellent market reputation as well as a product that people are willing to buy in the development stage. Therefore, you should consider this option only if you’re completely confident in your product and marketing plan.
Try Unorthodox Strategy’s – Crowdfunding and ICO’s
The rise of the internet has given way to the establishment of unorthodox funding models such as crowdfunding and initial coin offerings.
Crowdfunding marketplaces such as “gofundme” and “Patreon” allow you to sign-up your company to receive funding for your business using support from the private sector. You register your financial goals and investor returns on the platform, and when you hit your target, the platform releases the funds to your bank account.
ICO’s were all the rage of the last 2-years. Companies can create virtual tokens or cryptocurrency and offer these tokens to the public for sale. It’s an easy way to get funded and has the potential for huge returns. However, it’s not for everyone, so be careful with your risk assessment before you engage in an ICO.
Explore Your Options Before You Commit
Make sure you complete thorough due diligence on all of the financial models available to you. Select the option that suits your company and then commit to the deal.