5 Ways Alternative Funding Can Help Business Growth
Expanding a small business can be an expensive process. We understand that sometimes business owners need financial help to take their goals to the next level, but traditional bank loans aren’t always the best solution. That’s why we’ve created a list of alternative financing options for small businesses.
The alternative finance sector is evolving rapidly and challenger banks are becoming part of the funding ecosystem. For many entrepreneurs, keeping up with the pace of change and providing the best financing solutions for their startups and growing businesses can be a challenge. That’s why we’ve created this guide to many of the best alternative sources of funding available for businesses in London.
A recent study found that more than 94% of new businesses fail in the first year. Lack of funds is becoming one of the most common reasons. Money is the lifeline of every business. The long, tedious and exciting journey from idea to revenue-generating business requires a fuel called capital.
Why is it difficult for small businesses to get loans from banks?
Access to capital is difficult for small businesses for many reasons. It’s not that banks are against lending to SMEs, but traditional financial institutions have outdated and labor-intensive lending processes and regulations that disadvantage local businesses and smaller organizations.
Many SMEs applying for loans are new, and banks typically want to see at least a five-year sound business profile (e.g., five-year tax records) before applying for a loan. is even more difficult to access.
What is Alternative Funding?
Alternative funding is financing a business other than traditional bank loans to raise capital. Many of these alternative sources are available online. This may include angel investors, venture capitalists, providers of personal loans, government-backed loans, crowdfunding, etc. If you have a history of loan denials, poor credit, or are unsure of how much financing you really need for your business, please contact us.
Why Pursue Alternative Funding Sources?
There are several reasons for small businesses to explore alternative sources of funding.
Missing assets: Many small businesses do not have many assets to offer as collateral for loans. This can make it difficult to obtain credit from traditional lenders, who are typically reluctant to take the risk of default.
Limited credit history: Many small businesses are just starting up and do not have a comprehensive credit history to present to potential lenders.
Time consuming process: Applying for a traditional bank loan can take time and there is no guarantee that it will be approved. Using alternative funding sources often shortens the application process and increases your chances of being approved.
The challenge of securing traditional financing often makes alternative financing a better option for small businesses. And for many entrepreneurs, it’s a great way to get the funding they need to start a successful venture. Access to quality funding should not prevent you from launching great business ideas that benefit many.
However, understanding and navigating alternative financing options can be complicated. Read on for our top five alternative financing options to help you find the funding that best suits your needs.
1. Traditional loans
Even if you’re used to traditional bank loans and want to avoid them, there are even more attractive ways to get financing from banks. For example, SBA and small business loan funds serve as alternatives to typical bank loans.
These loans and funds are specially designed for small businesses and entrepreneurs. Also, they usually offer more attractive terms and no harsher penalties. This is beneficial for startups just starting to manage their funding needs. With these types of loans, it’s important to have a solid business plan before applying.
2. Business Grants
A grant is financial assistance provided by a federal, state, or local government. This is a fixed amount awarded to applicants who demonstrate a promising likelihood of success.
Getting a grant from the government or the Small Business Administration is the most common, but also the most difficult way. The National Association for the Self-Employed offers small business growth grants. However, these grants tend to have very specific eligibility requirements, which can make it difficult to qualify.
Crowdfunding is another alternative source of funding that typically helps with product launches. This fundraising method is like launching a promotional landing page to gauge interest. This is a viable way to test the market.
Starting a crowdfunding campaign is a great way to raise the money you need to grow your business. This alternative financing method is a viable option for many companies. Especially if you have an established audience. To be successful with crowdfunding, you need to have an effective crowdfunding business plan. Also, remember that crowdfunding can take a long time. If you need the money quickly, this may not be the right choice.
Crowdfunding has some advantages, but if you’re interested in going this route, it’s important to note that every crowdfunding site is different. Some only allow time-limited fundraising, some require goals to be met in order to receive funding, and some act as long-term community sites. Be sure to read the fine print to really understand that you can’t get all or nothing this way.
4. Venture Capital and Angel Investment
Venture capitalists or angel investors are individuals or companies that specialize in funding startups. To work with these people you must show them what they will receive in return for funding your business. Usually securing this investment opportunity involves a growth or exit plan.
This type of funding is well suited to certain industries (tech, healthcare, online, etc.) and usually requires some disruption to the business to adjust for growth. A solid business plan and proposal materials are essential here if this path seems like a good option for you.
Angel investors are wealthy individuals who receive stock in exchange for funding. They are profitable and typically have business knowledge to share to help grow their business. Please note that angel investors may scrutinize your business plan and you will need to justify your investment.
Like angel investors, venture capitalists acquire shares in your company in exchange for funds. Venture capital funds are similar to mutual funds in that they pool money from many investors. Venture capitalists also have business experience in the field they invest in and are involved in running the company. You’re giving up some control and equity in exchange for potentially a lot of money.
5. Invoice Financing or Factoring
Invoice factoring, also known as “factoring” or “debt factoring”, is a financial instrument that allows companies to sell their outstanding invoices (accounts receivable) to a third party factoring company (factoring company). A factoring company purchases an invoice for a percentage of its total amount and is responsible for collecting payment on the invoice.
Invoice factoring is a good source of funding for those who don’t have an in-house accounting or finance department and don’t have time to track late payments. That way, you have the cash flow you need to keep your business running while you wait for your customers to pay their outstanding bills.
Benefits of Financing through 24/7 Business Finance
Securing small business finance through 24/7 Business Finance has many advantages, making it one of the best alternative funding sources for small businesses. Some of the benefits are described below.
Lowest Interest Rates: 24/7 Business Finance offers low interest fixed rate business loans. In other words, low interest rates never go up.
Fast Approval Process: Once you apply and are pre-approved, we will draw your credit history and make a final loan decision within one business day.
Flexible Terms: We don’t believe in punishing borrowers for successfully prepaying their loans – we want your small business to thrive.
Transparent Pricing: 24/7 Business Finance’s policies are completely transparent and there is no hidden fee.
Long Repayment Period: Our loans have repayment terms of up to 10 years with predictable monthly payments.