Small business financing is best suited for start-ups seeking to avoid high interest-bearing loans from financial institutions. Small business financing options can help to get a business started without putting it under undue financial pressures related to repayments. The 7 small business financing options below give some pointers for alternative business funding options.
Community Development Institutions
Thousands of nonprofit community development finance institutions provide personal finance and capital to small business and microbusiness owners on reasonable terms. Seek funding from them if you are an ambitious start-up owner struggling to get access to capital to get started and grow.
VCs are an outside group who take part ownership of the venture in exchange for capital. Find one and get the necessary funding, besides all the knowledge and industry connections that you will be exposed to. If you lack that extra edge to grow your business, your VC will not only fund your business but also pass on that experience that will come handy.
Strategic partner financing is a business funding practice in which your strategic partner gets special access to your product, staff, distribution rights, or ultimate sale in exchange for capital. This can be a good personal finance option for you to get started as soon as possible.
The difference between angel investors and venture capitalists is that VCs invest in businesses by trading capital for equity whereas angel investors are individuals more likely to invest in start-ups or early-stage businesses not having the kind of growth potential normally sought by VCs.
Factoring is where a service provider lends you money on billed out invoices, repayable when the customer settles the bill. This keeps the cash flow your business needs to keep functioning intact while you await outstanding invoice settlements from customers.
P2P Lending is a highly pursued personal finance option to raise capital, borrowers, and lenders connecting through websites. The borrower creates an account on a peer-to-peer website which maintains records and transfers funds.
Convertible debt has the borrower being loaned money by an investor or investor group, the collective agreement being to convert the debt into equity in the foreseeable future. It is one of the best options to finance a start-up or a small business.
The business owner cedes some control of his business to the investor though. The investor is guaranteed some set rate of return per year until a set date for an option to convert.
The choice of small business financing options varies from based on preferences. What would be your choice? We would love for you to share what you think on this.