Adequate financing for any business is critical but even more so for a small business. Large companies appear to have a multitude of options to address financing and cash flow issues, while small businesses often have limited resources to address financing and cash flow troubles. From bailout funds to economic development grants, larger companies have options smaller companies often don’t have. Therefore, it’s important for small business owners to be aware of any nontraditional financing options that avail. Listed below are a few methods I think are noteworthy.
Financing with Alternative Business Loans
Peer-to-peer lending, a simple process done online, allows small investors to come together and lend money to individuals and small businesses for a variety of reasons. The lending rates, depending on your credit score, are usually competitive with bank loans. An added plus for peer-to-peer lending is the no requirement for collateral. The downside is the loans cannot be over $25,000. There are two I’m aware of that you may want to review. The first is Lending Club, the other is Prosper; both can be found online.
Another option you may want to consider is ACCION USA. ACCION USA is a private, nonprofit organization that provides microloans up to $50,000 to small business owners who cannot access traditional bank loans. ACCION USA targets low-to moderate-income entrepreneurs for its services.
One more option is family and friends. A formalized loan through a family member or friend gives the friend or family member a sense of security and helps protect the relationship between the lender and the borrower. It can be extremely helpful to have documentation to show repayment start dates, interest rates and a repayment schedule to cut down on confusion and misinterpretations. If this is something you think you can use then check out Virgin Money. It can be found online also.
The above loans are great when you just need a small amount to get you over the hump.
Alternative Financing Options
Sale/Leaseback funding is a transaction where the small business owner sells their existing equipment to another company and then leases it back. The leasing company in turn gives the small business owner a lump sum based on the fair market value of the equipment with the option of purchasing the equipment back at the end of the agreement. This is a win-win for both companies. This collaborative agreement allows one business to receive a return on its money through low monthly payments over a fixed or flexible period of time and the other, the ability to unlock cash tied up in fixed assets.
Another financing option is establishing a strategic alliance to secure needed assets. Let’s say you’ve created a product that requires an injection molded plastic part but you don’t have the money to buy the expensive custom equipment needed to produce it. You approach the owner of the plastic company and offer to pay him a percentage of every sale made for the product. The owner commits to the agreement. Again, this is a win-win for both companies. You eliminate the upfront cost of purchasing the equipment and the plastic company wins because they’re generating an additional revenue stream.