Funding a business is no easy feat, especially without the help of venture capitalists or other traditional titans. However, creative entrepreneurs have found other ways of raising the capital they need to fund their businesses.
Crowdfunding has become an infectious way of raising funds. As the name suggests, others fund your goal for a variety of reasons, either because they believe in your mission, want to see you succeed, or want to be one of the first to receive your product.
Sites like Kickstarter, Fundable, and Indiegogo are great platforms for marketing your creative project or business and asking for revenue from the public. In terms of business models, a reward base model is in place so that depending on how much an individual donates, they will receive some type of award, such as being one of the first to receive the product the business is selling.
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2. Social lending
Social lending is an innovative new method of business financing that works without involving the bank. On social lending sites, such as Prosper.com, people can apply for loans from other people, who then bid on the loan. Once the individual in need of funding is offered an attractive interest rate from a lender, they accept the loan.
All of the loans are three-year unsecured loans (without collateral, like a credit card), and when the loan is given, it gets deposited directly into the person’s bank account. Fixed monthly payments are withdrawn from your bank account during the length of the loan.
3. Build your own revenue stream
Many business owners raise their own funds, and there are plenty of ways to create revenue — some harder than others.
Here are a few ideas:
- According to one study, 68 percent of startup financing is funded directly by the business owner. If you’re really committed to your dream and need a lot of funding, you can cash in your assets by selling big-ticket items and downsizing (car, home, old jewelry, antiques, etc.) to build a cash reserve.
- Consider a second source of income. Some entrepreneurs use their talents and create small cupcake-making businesses or other endeavors, and make a surprising amount of money.
- Others have sold their services on websites like Fiverr, through which people can pay for others’ services, starting at just $5. If you can draw, by whipping up a quick sketch you can use your skills to make money.
- Are you willing to put your home on the line? If you are, you can open up a home equity line, which allows you to borrow the value of your home, deducting any outstanding mortgage you still have to pay. This is a great form of financing in terms of very generous interest rates. However, if you are unable to pay the loan back, you lose your home.
4. Prepaid sales
As we mentioned earlier, crowdfunding often involves an aspect of donating based on the lure of future rewards, such as being the first to receive a future product. However, you can also directly offer prepaid sales, which will cut out the middle man. Prior to starting, be cognizant of the reality that you could potentially get bogged down with back orders, so only sell as much as you can make.
5. Angel investors
Angel investors are successful entrepreneurs that have gained the success and financial security to be able to invest funds back into startup businesses. The help of a well-placed angel investor can be helpful in garnering connections and tips of the trade, and of course, in return they receive a stake in the company’s success.
6. Securing flexible partners and collaborators
If you need the help of another business or service to bring your dream to fruition, look for companies who are willing to work cheaply in exchange for more money in the future.
Let’s say you opened a grocery store, and you partner with a vendor who sells coffee in order to give your customers a variety of options. You might not have all the money you need to pay that vendor upfront. However, if you suggest a creative payment plan that benefits them in the long-run, they may still be interested in working with you.
For example, you could offer them a small fixed monthly fee in exchange for a percentage of your future revenue for a fixed amount of time. This allows you to keep more money in your pocket for the time being.
Another tactic to try is offering a collaborating business a contract for services in which you pay the lowest minimum now, in exchange for paying twice as much in the future, either as a large balloon payment or a fixed payment monthly. Negotiation is the name of the game, and haggling skills are a must.
7. SBA Financing
The Small Business Administration offers a micro loan program specifically for small business owners. One hundred seventy non-profit lenders nationwide are the intermediaries that receive funding from the SBA, and in turn, they lend to business owners at relatively low interest rates. Additionally, the SBA also offers “7(a)” loans, also tailored for new businesses, a portion of which the SBA guarantees and pays back.
For entrepreneurs in search of the funding they need to have their big idea take off, creative methods of raising capital may be exactly what the doctor ordered. Brushing aside the traditional financing streams may just may yield new financial paths that are both more rewarding and affordable.
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