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Wednesday, June 25, 2014

5 alternative ways to fund a business startup

Business startup financing
Alternative financing helps boost capital prospects
By Harry Price

Starting a business inevitably requires major funding. The traditional route to financing a small business involved a trip to see the bank manager, followed by an agonising wait whilst you learnt whether you’d successfully secured the cash.

These days, it’s getting tougher and tougher to fund a startup the traditional way, as many banks have become less willing to deal out large sums of money in the tough economic climate. All isn’t lost though: as one door closes, many more open up, and there’s now a multitude of options to fund a small business startup if you’re willing to try alternative forms of borrowing.

These methods of raising cash will invariably come with slightly higher interest rates than a typical bank loan, but with that price hike comes a greater willingness to lend, and a greater willingness to take a risk on your fledgling company. So if you’re looking for a method of funding your startup, and the bank can’t help you, here’s some ideas for alternative methods of funding:

1. Always try the traditional options

Before you despair at the lack of options, make sure you’ve exhausted all the traditional bank loans available. The key is to have an extremely thorough business plan and a comprehensive list of assets and projected income.

2. Borrow against an expected income stream

Purchase order financing works well as a short term solution. Many bootstrapped companies will have been formed quickly around one or more contracts. If you’re in a similar situation, and you have the paperwork to prove you have a large contract waiting to begin, you can often borrow capital on the future invoice you haven’t yet issued.

3. Get financing on as yet unpaid accounts

This option is similar to the purchase order method, except you’re further down the payment process. It’s fairly standard to have a number of contracts or sales successfully completed but still having a number of invoices unpaid. If that’s the case, it’s possible to borrow against these unpaid bills. The major issue with this method is proving that the customer is solvent enough to pay the bill!

4. Try peer-to-peer lending

Peer-to-peer lending is the new kid on the block when it comes to funding. In essence, you state the amount you want to borrow and the reason for the loan, then you undergo a credit check, and once approved, your loan is “shared” amongst several (or hundreds!) of individuals who pledge small amounts of money to your cause.

For a lender, it’s a great way to make some cash instead of putting the money in a low interest account. For you, it’s a great way of securing a loan with a decent interest rate. www.garethhjames.com, an internet business man agrees: “Peer to peer lending sounds like an unusual concept, but it’s a great way of raising cash when banks can’t help you. The sites are well regulated and safe too”.

5. Borrow against your projected sales

If you run a business that sells directly to the public, it’s possible to get finance on your projected sales. You’ll have to produce some detailed figures, but once you’ve received the money, you’ll pay back the loan based on a percentage of the sales you’ve made via debit and credit cards.

Securing a loan for your small business is never going to be easy, but the financial downturn has opened up many innovative and reasonable priced options that mean you don’t necessarily have to get a traditional bank loan.

About the author:  Harry Price  is a freelance writer who specialises in guest blogging. He is also a personal trainer and entrepreneur. He was inspired his father who was also a successful entrepreneur and always dreamed of having his own business one day.

Image license: US-PDGov