5 Alternative Ways To Fund Your Small Business

Probably the most important factor when it comes to running a small business is ensuring that you have the necessary funding and cash flow needed to stay afloat. Small business lending by large banks has declined substantially since the credit crunch in 2007 and the 2008 financial crisis, which made it difficult for many small businesses in the US to survive.

However, there is now a range of new funding opportunities available to small businesses as booming financial technology sector has given birth to start-ups that are offering new financial services to consumers and SMEs. In this article, you will be introduced to seven alternative ways to fund your small business, so that you no longer have to rely on expensive bank loans, business credit cards or your personal savings to run your business.

Peer-to-peer lending

A popular new way for start-ups and small business to fund themselves is through peer-to-peer lending. As a small business owner, you can apply for a peer-to-peer loan via online peer-to-peer lending platforms. Once you have passed the due diligence process and have agreed to the offered terms and conditions of the loan, your loan will be listed on the platform online and investors can invest in it. Once the loan is fully funded, the money will be dispersed to you. Investors receive strong fixed interest returns on their investment while you as the borrower can borrow at reasonable interest rates compared to bank loans.

Small business loans from online lenders

Alternatively, you could apply for a small business loan from an online lending platform. Online lending platforms use a combination of big data and algorithmic data analysis of your company and it’s financials to assess your creditworthiness. This enables more small businesses to receive funding at reasonable interest rates than when applying for small business loans at banks.

Invoice factoring

For a long time, invoice factoring has only been available to large multinational corporations. However, there are now various platforms that offer invoice factoring services to small businesses. Invoice factoring refers to a method of funding where a company sells its invoices at a discount in return for cash to meet immediate cash flow requirements. This is an excellent way of funding if your business has long payment cycles and deals with a range of customers and suppliers.

Business line of credit

A business line of credit is a flexible financing option for small businesses and one that can come in handy during times of financial duress. A business line of credit is credit provided by a lender that you can ‘dip’ into when needed. It works similar to credit cards, except it tends to carry lower interest rates on average and is specifically targeted at small and medium-sized businesses. The good thing with revolving credit facilities, such as a business line of credit, is that you are not required to make any payments or incur interest costs until you actually need to use your line of credit.

Merchant cash advances

Finally, you could also opt for merchant cash advances. Merchant cash advances are cash advances, which you pay off with a percentage of your sales every day. Merchant cash advances don’t use interest rates. Instead, they use a so-called factor rate, which can range from 1.15 to 1.5 or more. In other words, you pay back 115% to 150% of the original cash advance out of your sales. Cash merchant advances can, therefore, be very costly so you need to make sure the numbers add up when you opt for a merchant cash advance so that you can pay it back all back within a year.