The funding available to businesses is changing, and the current state of the economy may make looking for and obtaining loans seem like a nightmare. If you're struggling to get a bank loan or don't like your current options, there are alternatives to traditional loans that are likely available to you. Because grants are money that is given rather than simply borrowing, it is much more competitive to receive them. While they are difficult to acquire and often require specific circumstances, grants are incredibly valuable.
If you're looking for a grant, government and SBA options are probably the most common but difficult routes to follow. However, there are resources such as the NAV and the National Self-Employed Association that can help you discover more open options to make it easier to obtain a grant. Some notable options include Kabbage and PayPal, but the trick is to research. Each option has its own set of benefits and limitations, which can mean less funding available, being tied to a specific lender in the long term, or even higher interest rates.
With financial technology, companies can benefit from expanding their funding options, automated accounting, online payments, and more. Crowdfunding is another alternative source of funding that is often beneficial for product launches. This funding channel is like launching a promotional landing page to measure interest; it's a viable way to test the market. Crowdfunding has several benefits, but if you're interested in following this path, it's important to keep in mind that every crowdfunding site is different.
Some only allow funding for a limited time, others require you to meet your goal of receiving funding, and others serve as long-term community sites. Make sure you read the fine print to really understand that you can get everything or nothing if you follow this route. Peer-to-peer lending is also known as social loans, which essentially allow people to borrow and lend money to each other and from others. Think of it as a combination of crowdfunding, lending and angel investment.
Are you ready for stock-based crowdfunding?. Traditionally, banks, institutional investors and governments have been the main and dominant sources of funding for the economic system. However, it should be noted that there are also other sources and instruments of funding. These forms of funding, often labeled as alternative forms of funding, can be interesting for circular urban initiatives.
SMEs need access to funding that allows them to grow and develop their businesses. While traditional sources of funding, such as discounts on bills, overdrafts, bank loans and private equity, are still the solution for many, in recent years we have seen significant growth in alternative sources of funding, such as crowdfunding, peer-to-peer lending and retail bonds. Companies seeking funding through a rewards crowdfunding platform often offer a non-monetary return to investors in exchange for what is actually a grant. These non-monetary rewards can range from walk-in participation in a film, attendance at a cultural event, or a finished product.
Kickstarter and Indiegogo are two of the best-known global platforms, with Crowdfunder being a key player in the United Kingdom. Business credit cards are credit cards issued under the company name and used for business purposes only. Approval of a business credit card often depends on the business owner's personal financial and credit situation. Having a business credit card can help generate business credit, offer rewards and bonuses, be useful for keeping personal and business expenses separate, and provide a relatively quick way to access cash.
Kickstarter and Indiegogo, for example, are platforms dedicated to crowdfunding. When choosing where to launch your crowdfunding initiatives, research your options, there are several fees involved, and some sites have an “all or nothing” approach where you don't receive your funds unless you meet your objective goal. Crowdfunding can help create awareness and publicity for your company, but it also comes with pressure to meet your goals in a short time and can require a significant amount of marketing to carry out an effective campaign. One of the main reasons why the coronavirus has proven to be so detrimental to the survival of many small businesses is because of the significant impact it has had on incoming cash flow.
The unpredictable nature of the virus also means that it's highly unlikely that companies have been able to adequately prepare for long-term revenue loss. As this survey suggests, 75% of UK companies only have enough cash reserves to last two months or less. Therefore, when many SMEs are faced with something as indeterminate as a pandemic, if alternative funding options are not explored, their survival may ultimately be put at risk. Also known as a merchant cash advance or a PDQ loan, a business cash advance is a type of short-term unsecured cash loan.
This means that it is issued and backed solely by the creditworthiness of the borrower, and not by the exchange of any type of guarantee. Therefore, for this reason, the loan depends on the borrower having a relatively good credit score. However, unlike traditional unsecured loans, there are no fixed payments each month. Instead, part of the loan is automatically repaid each time a payment is processed at the company's card machine.
This means that the repayment process can be adapted to the good performance of your company, since the loan is canceled faster when more card payments are processed. The business cash advance lender will advance a sum to the company, approximately equal to the monthly billing of card sales. Then, a percentage (usually around 10%) will be deducted from each future sale that is processed in the company's card machine. In short, this means that 90% of the proceeds from the sale of the card will go to the business and the remaining 10% to the lender to repay the loan.
This type of loan is available to virtually any company that uses card machines as a form of payment, as long as it also meets the eligibility criteria. What are the main benefits of a cash advance for businesses? Launch contests are contests in which business owners and entrepreneurs present their business idea to a live audience and jury. They are usually aimed at people who are just starting out in the industry and have not yet established themselves in their chosen niche. Improve exposure: In addition to providing your company with large amounts of capital, presentation contests are a great way to publicize your business.
Most events have a large live audience, and some are even broadcast live. Therefore, in addition to being important business opportunities, these contests also offer valuable types of free advertising. Participation is free: participation in most court competitions is completely free, so they do not include any initial costs or investments. This makes it an ideal choice for businesses that are just starting out.
Networking opportunities: Pitch competitions will be packed with other experts in their field, making them the perfect place to network. Presenting your idea to other companies in your industry also provides you with the ideal platform for establishing connections and networking. To be eligible to apply to launch competitions, companies must be in their early stages, so this excludes companies that have already achieved some level of commercial success. Most court competitions require that you pass the conceptual stage of your business plan, but have funding of less than £500,000 under your belt.
Applicants are then selected based on their business concept, their skills and their ability to execute their idea. Simply search for submission contests that are relevant to your specific industry. If you don't know where to start, some of the most important players are The Pitch, the IPSE Freelance Awards or the Green Challenge, if your company's idea focuses on sustainability. Peer-to-peer crowdfunding, often abbreviated as P2P, includes companies that borrow funds from a variety of individual lenders, before repaying the amount with additional interest.
Equity crowdfunding is similar to P2P lending, but instead of lenders withdrawing repayments, they are claiming small shares in the company. This means that there is no definitive deadline for them to get their money back. Keep in mind that most crowdfunding sites take a small percentage of their funds, usually around 5%, and this is in addition to card processing fees, which range from 3 to 5%. The nature of angel investing varies, and money can be invested in isolation, as a lump sum, or on an ongoing basis, depending on the type of relationship that forms between the company and the investor.
The primary role of an angel investor is to provide the company with financial support, but many also play an advisory role. Because of the unique nature of angel investment, the amount of funding and the details of the investment depend on each investor and their relationship with the company or entrepreneur. What are the main benefits of angel investing? Flexible agreements: Compared to banks and large investment firms that have strict funding guidelines, angel investors are much more flexible in terms of the amount they are willing to provide. This makes angel investing a suitable option if you are looking for a large sum of money or a little less than what is normally offered.
Government-backed loan plans are types of government-subsidized loans. They help protect lenders when loans aren't sufficiently repaid, and this helps private lenders reduce interest rates significantly. The two main government-backed loans that have been introduced to help with the impact of Covid-19 are the Coronavirus Recovery Loan Plan (BBLS) and the Coronavirus Business Interruption Loan Plan (CBILS). The Coronavirus Business Interruption Loan Plan (CBILS) also aims to provide aid to small and medium-sized businesses, but (unlike the recovery plan), the CBILS offers up to 5 million pounds sterling to every company that requests it.
The government guarantees 80% of the funding to the lender, and companies are also exempt from paying any interest on the loan during the first year. BBLS: This loan plan is available through a number of lenders that have been accredited through the British Business Bank. Since the plan has a 100% government-backed guarantee, the lender doesn't have to cover outstanding principal balances or interest. However, the borrower is still responsible for the debt.
You have options beyond traditional lending, such as non-bank funding, insurance capital and crowdfunding. Of the different forms of crowdfunding, types of securities and regulation (capital) are the fastest growing financing options for small businesses. If you have an entrepreneurial dream, crowdfunding can help you make it a reality. Find out what it entails and how to succeed in our practical guide.
There are many alternative funding sources available online and, with the industry increasing year after year, there are an increasing number of options available for struggling small businesses. The recent emergence of fintech lenders could serve as a beneficial alternative funding channel. With an increasing number of SMEs refusing bank loans, and many seem to overcome the shortcomings of the recently announced Employment Support Plan, an increasing number of companies are forced to resort to alternative funding options for support. In a nutshell, alternative financing is a way to finance your business, outside of traditional bank loans or government plans.
Unconventional funding options for companies often involve very high costs or other barriers, but they can provide a funding channel when more traditional options are not available. In a nutshell, alternative funding is obtaining funding for your company outside of traditional bank loans to raise capital. It's even possible to combine money from your retirement fund with loans and other funding methods for greater flexibility. Also known as “alternative finance”, it is an ideal course of action for companies that have been rejected in the past, have poor credit, or are unsure of the amount of funding they may need.
If you're looking for a small business, it's important to know about alternative financing options, but keep in mind that, in some cases, it's still possible to borrow from a bank. Alternative startup funding is broadly defined as funding from sources other than banks or the stock and bond markets. Regardless of the funding options you choose, it's important to have a solid business plan that supports your business and increases your chances of acquiring funds. To help you find the best funding that fits your needs, read on to learn about the 8 best alternative funding options.