With business financing, it’s try and fail and try again. A full 77% of business owners who apply for a loan from a large bank get rejected.
If you’re in the 77% boat, you’re likely discouraged. You need the funds to get your business off the ground, but all that work seems like just another mountain to climb.
The good news is, there is more than one way to start a business. And with the peer-to-peer economy on the rise, more ways to fund a business are cropping up all the time.
Here are some loan and business funding options to help you fly with your business.
This is the least surefire way to fund your business. But if you succeed, you get to say your customers and fans funded you. And then you have the privilege of saying your business is customer-centric from the ground up.
How social media savvy are you? Could you run a short social media campaign and build momentum? Could you pique interest in your product by sheer force of will?
Then crowdfunding is for you.
You Need a Fanbase
The only caveat, you need a fanbase or an incredible story. Likely both.
You need a fanbase who is willing to fork over the cash as well. Unfortunately, some fanbases aren’t so keen to give away money.
If you’re already giving your service away for free, you might not have the right audience. I saw this happen with a friend of mine. She’s an extremely talented cartoonist and she had a popular webcomic. She decided to crowdfund a book of her work and thought her fans would fund her.
The problem was, the webcomic subscribers were all looking for a free laugh. Nothing more. They weren’t fans willing to buy her work.
Had she already been using a paywall, she would at least know people were willing to pay a small fee for her work. Now, it didn’t mean her work wasn’t worth the money she was asking. It just meant she had attracted the wrong crowd.
So, before you decide crowdfunding is the right direction, do your research. Poll your audience. And build a fanbase who would be willing to support you to greatness.
2. Personal Loans
If you’ve been rejected over and over again for a business loan, it’s time to go somewhere else. And I don’t mean just to another bank. I mean to another kind of loan entirely.
With SMBs you have to jump through a billion hoops already. With a personal loan, you jump through fewer hoops.
Personal loans trump business loans when you need money in a pinch. Personal loan lenders will disburse your loan within a few days whereas a business loan could take up to a few weeks after finalization.
Even if your credit history is fairly non-existent, you can still get a personal loan. Yes, it’s more difficult to obtain a loan when you have little to no credit history. Income-based loans fill the gap.
If you can show a lender you’re responsible with your money and you have the funds and assets to pay them back, they’ll be more likely to give you the cash.
3. Nonprofit Microloans
Let’s say you’ve saved almost enough to start your business, but if you don’t take advantage of the market conditions right now, you won’t take off. You can’t just do a small crowdfunding campaign and getting a business loan will take forever.
Enter nonprofit microloans. Now, not everyone can take advantage of these. You must meet certain criteria and these typically apply to a certain kind of person the non-profit wants to boost.
If you’re a minority, you’ll likely find a non-profit willing to help you start a business. If you live in a developing country, you might be able to find a non-profit microloan.
For example, Grameen America has passed out $490 million in loans to U.S. women. They don’t just give out the funds. The women must form a group with four others and participate in financial training before receiving the loan.
4. Lenders Outside of the Banking System
There’s a lot to understand about alternative lending and we don’t really have time to go over everything today. But suffice it to say, alternative lending excludes traditional banks.
Some examples of alternative lending include peer-to-peer options like the original Prosper and Lending Club. And like personal loans, alternative lending is faster and more flexible than SMB loans.
Most of these institutions are online lenders. But some are platform lenders like PayPal or Acorns. These companies use technology to their advantage and eliminate overhead.
The biggest downside is often higher interest rates. You might not want to take out too much or you might be paying for a long time.
Here are some examples of alternative loans:
Term loans set a term in which you must repay the loan. They’ll set the number of repayments. These can be short or long-term. You can get a loan for up to three years or longer.
Lines of Credit
Revolving credit is like a credit card but better. You get to take out the money whenever you need, but you’re only charged interest on what you take out. There is a limit to how much you can take out just like a credit card.
The biggest downside to these lines is they can close at any time and without warning. So make sure you have a line of credit with a reputable lender.