When you think about borrowing or lending money for your small business you may think of turning to your local bank, asking family or friends, or charming venture capitalist or angel investors. However, the financing landscape has drastically changed over the last several years where there are more options than ever before.
If you’re a small business owner and looking to secure funds to help grow your business, then here are the alternative financing options to consider.
Just like with lending money to friends by using apps like Venmo, peer-to-peer lending for business owners cuts out the middle man and allows parties to lend money to each other. However, has Teddy Nykiel explains for NerdWallet, “they’re an intermediary between you and individual and institutional investors such as hedge funds and investment banks.” “Those third-party investors can invest in the loans on online P2P marketplaces, and they take on the investment risk, not the P2P lenders.” Nykiel adds, “After investors agree to fund the loan, the P2P lender will transfer the total loan amount into your bank account. You’ll repay the P2P lender, and they’ll deal with repaying the investors.”
The three most popular P2P lending options are;
- Lending Club is flexible option that issues $15,000 to $300,000 in a loan amount, 8% to 32% APR, and approval under one week.
- Funding Circle is recommended for established businesses looking to grow. Loan amounts range from $25,000 to $500,000 with an APR of between 7% to 26%.
- Prosper is a solid decision for startups seeking $2,000 to $35,000. APR is at 6% to 36% and approval can occur in as little as two day.
Other options include newer alternative lenders like like FundBox and BlueVine that borrow against your credit card receivables.
Did you know that payment gateways like PayPal and Square offer lending options for small businesses.
PayPal Working Capital is a low-risk loan that has flexible payment options, no credit check, and a fixed fee determined by the amount of your loan, the repayment percentage, and your sale’s history.
Square Capital provides personalized loans with fees between 10% and 16% of the amount borrowed. To ensure that you don’t fall behind on your payments, Square will take a percentage of your daily card sales to pay off the loan.
Another popular online lending option is Kabbage. Resembling a line of credit, Kabbage uses your uses your, accounting data, seller history, and reviews to determine how much money you’ll receive. Funds are deposited into your PayPal account with interest rates between 10% and 18%.
Other alternative financing options you can find online are Fundation, SnapCap, and Dealstruck.
Crowdfunding has become a popular alternative for raising money for projects and businesses over the last couple of years. One interesting aspect regarding crowdfunding is that if you don’t raise 100% of the funding for a project you won’t receive the money at all and it will be returned to the donors.
Another option is equity crowdfunding where you would exchange shares for the cash that you need.
Self-financing may not seem like a feasible option, but it should be one of the first places that you look when you need money to grow your business. You could have more than enough assets in real estate, vehicles, investments, and retirement accounts.
You may also have access to lines of credit through your current credit card company, but just make sure that the interest rate is low enough to be worth considering.
You could also side hustle and get a side job to make some quick cash each month.
This is often an overlooked technique and can be used prior to the launch of your business where you start selling your product before it goes on the market. Bittylab is one company that successfully used this tactic. In just two weeks, the company raised more than $50,000 in presales.
The main perk of product presales is that you don’t have to borrow money elsewhere and the funds go directly back into your business.