Regardless of whether you’re a fledgling entrepreneur or a seasoned business owner, funding your venture and projects will require capital at various points in your business’ journey.
While banks are not always open to lending to small businesses, let alone start-ups, traditional business loans have rigid criteria, which might not suit your requirements.
To determine the right financing avenue for your business, it is vital you understand the various options available to you. Here are the most common alternative funding methods so that you can make an informed decision.
Crowdfunding on sites like Kickstarter and Indiegogo allow businesses to raise funds online. By leveraging a large number of individuals who pool in small amounts of money, you can raise a sizeable amount of capital to fund your venture.
- Easy to set up even if you don’t have a technical background.
- Doesn’t have to involve a dilution of your equity.
- Good exposure across various social networking platforms.
- Requires an investment of money to give your endeavour the fuel it needs to generate interest.
- Time-consuming to set up and run a campaign before it comes to fruition.
Peer to Peer Lending
By taking out conventional lenders like banks and financial institutions, peer-to-peer (P2P) lending enables business owners to secure loans directly from other individuals. Also known as crowdlending or debt crowdfunding, this alternative funding solution is usually carried out online where lenders can be matched with prospecting borrowers.
- More accessible than traditional financing options.
- Lower interest rates because it’s a more competitive environment.
- Reduced regulations in place, which equates to higher risks for both parties.
- Lack of interaction that isn’t conducive to building healthy business relationships.
Equity Crowdfunding involves raising finance from people online by offering them a stake in the business. It is an alternative funding solution for private companies that are not listed on the stock exchange because it requires selling securities like convertible notes, shares, profit sharing, and debt.
- Increased access to capital because many individuals can invest in a business.
- Accelerates business growth due to the availability of funds so entrepreneurs can sink capital into manufacturing, marketing, and R&D.
- Complicated rules might require a larger investment of time and money to ensure businesses comply with regulations.
- Increased accountability because several owners need to be kept informed about business development.
Business Line of Credit
A business LOC is a revolving line of credit, which gives you the flexibility to take out cash against a predetermined credit limit as and when you require it, as many times as you need to.
Line-of-credit (LOC) Vs Small Business Bank Loan
A small business bank loan is a lump sum of money lent to you, for which you pay interest until the entire amount is repaid and is usually fully amortised.
With a line of credit, on the other hand, you enjoy more flexibility. Since a LOC allows you to borrow finance when you need it, in essence, you have funds readily available to finance your cash flow requirements.
Unlike a small business bank loan, where you have to start paying interest on the entire principal pretty much straight off the bat, with a business line of credit, you only pay funds on the amount you withdraw.
Plus, with a business term loan, you will need to reapply for a loan every time you require financing. This equates to going through underwriting, paying origination fees and closing costs every time you need more money. With a line of credit, you save on these additional costs.
Benefits of a Line of Credit:
- Flexibility – An LOC allows to take out just how much you require and you pay interest only on the withdrawal amount, so you’re not overspending.
- Finance for on-going projects – While a LOC can be employed to fund your business if you’re just starting up, these financing solutions also work great when it comes to paying for short term expenses like covering operational costs, purchasing equipment, and increasing inventory.
- Better cash-flow management – With an LOC, small business owners find it easier managing business fluctuations.
- Emergency funding solution – A line of credit is a great financing solution for emergency funds if you use it smartly.
- Affordable interest rates – Lower interest rates than credit cards, which provides considerable savings.
For more details about just how beneficial a line of credit can be for your business, get in touch with &Solved, Australia’s most preferred line of credit lender for small business owners.
With a fast application process, personalised interest rates and borrowing limits, &Solved provides highly flexible, affordable and sustainable financing solutions that will help you save money in the long run.