Starting a small business involves several processes. One crucial element in setting up a business is financing. Considering the cost of setting up a business, sometimes the business owner requires financial assistance. At times, financing a small business can be a complex process. Usually, getting a traditional bank loan won’t be the best funding option.
Considering the importance of funding for small businesses, we have created a comprehensive list of alternative funding options. Keep reading to get benefitted from these non-traditional funding options.
Top Reasons to Choose Alternate Funding for Small Business
Alternative funding is a relatively new concept in the business world. This means financing outside the traditional funding options, like banks and other lending institutions.
There are several reasons why business owners often need to explore alternative funding for small businesses. Some of the top reasons to choose alternate funding are:
- Easy Qualifications for Funding
- Lower Credit Score Requirements
- Faster Funding Approval and Disbursements
- No Collateral Required
- Lower Interest Rates
Different Types of Alternate Funding Options for Small Business
You can fund your small business with these options:
As the name suggests, microfinancing is a smaller version of a traditional bank loan. Business owners prefer this type of funding for small businesses if they require a small amount of money. Lenders offering microloans process and approve loans faster than traditional banks.
Another popular alternate funding option is crowdfunding. In crowdfunding, the business owner needs to put their business idea on the web and ask people to invest in this idea. This type of funding is beneficial for product launches. Various crowdfunding platforms can help you to raise money.
- Peer-to-peer Lending
Peer-to-peer (P2P) lending is a financing option that introduces borrowers to lenders through various trusted websites. This is a type of direct money lending. Both secured and unsecured loans are provided in this alternate funding option.
- Business Grants
Usually issued by government organizations, business grants are the most sought-after option of funding for small businesses. The best feature of this type of funding option is that they do not require repayment. These grants have specific eligibility requirements, and they are difficult to get.
- Venture Capital and Angel Investment
Venture capitalists or angel investors are companies or individual lenders who exclusively fund start-ups and small businesses. These investors require a growth or exit plan to invest in your business. The interest rates for this type of funding are pretty low.
- Borrowing from Family and Friends
Lastly, on the list of alternate funding options is borrowing capital from family and friends looking forward to investing in a business. This is a viable funding option, as you already know the lender personally, and this will provide you the flexibility to draw a contract that will be convenient to both parties involved. You might also get a generous payback time in this funding option.
Depending on the type of business and your funding requirements, you can opt for any alternative funding options.
Finance Your Small Business by Connecting with Experts at Economic Development Collaborative
If you need guidance with helping your business reach new heights, contact us at Economic Development Collaborative. We are your business advisors for life and strive to provide all the necessary support to accomplish business growth, economic prosperity and high quality of life. Reach out to us to know how we do this!