The Best Way To Fund Your Business in 2019
Funding a new business or for that matter an established one, too, is not an easy task. With startups mushrooming and growing, worldwide, there has been a marked increase in demand of startup, as well as, SME funding, globally. While entrepreneurs have a number of options apart from bank loans, overdrafts, line of credit, and loans from friends and family to fund their business, thanks to the ever-evolving world of fintech, they have more options to fulfill their funding requirements to boost business. This post covers some of the best methods of financing your business this 2019.
Getting started on the financing plan
When you decide to add more funding to your business, there are two questions you need to ask yourself: How much financial aid do you need? And in what form?
You always have the option of either borrowing or bringing in an investor to help fund your business. In the first case, you will need to show a good credit score to be able to borrow the money and in the second case you will need to show current revenue patterns, future forecasts and a steady growth rate to get your investor onboard.
When talking about alternative financing options, you can always apply for a business credit card to fund your financing needs. However, if you are unable to get one, you can apply for a personal loan instead and use the money to fuel your business. However, if your credit score is keeping your loans from getting sanctioned and you happen to be a homeowner, then you can take out a loan by keeping your house as collateral. Providing collateral partially cancels the effects of a low credit score and makes you a low-risk borrower for your lender.
Your credit score and debt to asset ratio are some of the factors that dictate the interest rate that you will be charged with. Needless to say, a good credit score, insured and secured business, a steady flow of revenue, all go in favor of lowered interest rate.
Nevertheless, if you are still facing difficulties in getting a loan from the bank because of a low credit score or absence of any collateral that could support your loan, you can always consider alternative lenders.
Alternative lenders and how they can benefit your business
Ever since the subprime crisis of 2008, banks have been wary of sanctioning loans to small businesses and individuals. They prefer looking at and financing big accounts and corporates that have enough finance in the first place to convince the bank that they will not default on the loan sanctioned. However, this does not solve the problems for individual and small business owners who still need loans to finance their businesses. Enter alternative lending. These lenders use fintech which enables them to make faster and more informed decisions, take on more risk, and provide competitive interest rates to small business owners. These are some of the reasons why alternative lending has exploded and seen astounding success in recent years.
Alternative lenders offer business owners different kinds of funding options based on the latter’s needs. Here’s a look at some funding options:
- Term loans – These allow you to pay back a fixed amount of the principal along with the interest paid back over time.
- Equipment loans – These are specifically sanctioned to fund business equipment and machinery.
- Factoring – One of the most used form of alternative lending, factoring allows your business to get up to 80% of its outstanding invoices at a go.
- Merchant Cash Advances – In this option, you get paid a percentage of sales daily or weekly.
Most of these alternative lenders have huge backing from venture capitalists and a strong foundation using the most advanced forms of technology to make loan origination an easier and faster process. With a firm focus on innovating new products that will create better customer experiences and increase their user base, alternative lenders are steadily foraying into the field of financing more and more startups and small businesses.
Investment as a financing option
As a small business owner, you can always look at bringing onboard investors to help fund your venture. However, bringing investors in might also mean forsaking some of your decision-making rights on your business, as investors will like to control the share of business they are paying for. It is up to you as to how much share and control you are willing to give up in order to fund your business. Investors and venture capitalists also come with huge networks and strong business acumen from which your business can benefit immensely. With their vested interest in your business because of the money they have put in it, they cannot help but pool together resources to make your venture more profitable and expand it, in the long run. Therefore, by bringing investors on board, you gain not only financially but also tactically. VC also happens to be a great choice for businesses that don’t have collaterals to serve as lien, against bank sanctioned loans.
Using Crowdfunding to fund your product idea
Crowdfunding is steadily increasing in popularity among many product-based startups. Crowdfunding on websites such as Indiegogo and Kickstarter are not unheard of whereby small business owners collect investments from several investors who have vested interest in their product. However, if you decide to go for crowdfunding make sure to read the underlying fine print which may include information on payment-processing fees or terms such as the business needs to raise the funds to match their full financial goal in order to receive the money that has been raised.
Government grants for research-based or scientific ideas
Though not found in large numbers, if your business is based on scientific research, it might receive grants through the Small Business Technology Transfer (SBTT), Small Business Innovations Research (SBIR) programs. With government grants and access to better infrastructure, successful product development might also lead to an increased potential for commercialization.
Why small business owners should consider alternative lending?
As discussed above, there are many options small business owners can choose from when they are planning to inject more finance into their business. Advent of alternative lending into the lending landscape has made it more competitive. Apart from reasons of fast processing, lower interest rates, and higher chances of loans getting sanctioned, here are few more reasons why alternative lending in the way to go for small business owners, this 2019.
Higher goodwill and better credibility – When business owners take the alternative lending route, they have the opportunity to bring in the expertise and goodwill of a strategic partner who not only adds to their finance but to their credibility, as well, by investing into their business.
Relatively hands-off business guidance – With an alternative lender on board, small business owners stand to gain from their vantage point and make good use of their business acumen, understanding, and advice. Since alternative lenders have their own slew of businesses to handle, the assistance they provide is relatively hands-off giving you the space you need to operate your business independently.
Complete infrastructural help – This is probably one of the best benefits of having an investor onboard. As a strategic partner armed with their very own marketing, IT, HR, and finance team, a small business or startup will have complete access to the skill sets of these verticals at a favorable rate which otherwise would have been both inaccessible and expensive.
Thanks to alternative lending, financing your business is no longer a painful process but one which brings in more benefits than one could imagine. It depends on your risk appetite and requirements as to which one suits you best and then take the right call.
