If you’re launching a new business, you may not qualify for a traditional loan from a bank just yet. Or perhaps you’d like to go lean and not take on the responsibilities of borrowing from a bank. Whatever the case, by getting creative, you can tap into alternative sources of funding. Here are a few ideas for financing that bypass a traditional lender.
Besides popular sites such as Kickstarter and IndieGoGo, business-specific crowdfunding platforms such as Seedrs, Code Investing and Crowdcube allow you to offer rewards or shares of your business in exchange for funding. In addition to being a way to raise capital for your venture, crowdfunding is a great way to see if your business idea has legs, attract attention, and gain potential customers.
If you’re choosing to go the crowdfunding route, spend some time comparing the different platforms out there. Each has pros and cons, fee structure, terms and conditions. Read reviews of each platform, and poke around the platforms to see which kinds of businesses do best on each site.
Another way to secure funding is by way of angel investors. Also known as seed investors or business angels, an angel investor is usually a well-to-do person, such as a doctor, lawyer or successful business person who wants to help fellow entrepreneurs. They might even be one’s wealthy friend or family member. To qualify as an angel investor in the U.S., you’ll need to have a minimum net worth of $1 million, or rake in an annual salary of $200,000 (or $300,000 jointly if you’re married).
Angel investors might provide either a one-time investment or an ongoing one in the early stages of your business. And instead of being solely interested in making profit from their investment, they’re primarily interested in helping launch your business. Funding that comes from angel investors usually has more favorable terms than what a traditional bank might offer.
With online peer-to-peer (P2P) lending, you connect to and directly borrow from investors without having to go through an intermediary like a bank. In recent years, P2P lending has provided an option for businesses with little or less-than-stellar credit history.
While not a traditional loan from a bank, you do need to apply for lending on a P2P platform. And like a traditional loan, P2P lending comes with interest rates, terms and conditions you’ll need to carefully review. While P2P loans tend to have higher approval rates for applications and more flexible terms, the interest rates are correspondingly higher. So you’ll have to gauge whether getting financing from a P2P lender is worth the costs involved.
Enlist the Help of Friends and Family
Tap into your support network to explore getting a loan from family or close friends. You’ll most likely get more favorable terms from your mom, grandparent or cousin than the bank.
Of course, just like any loan, lay out the terms and conditions of your agreement on paper, and create a legal document. And because you’ll be borrowing money from your network, make sure to suss things out well beforehand. This could help avoid potential conflict, and will prevent your relationship from going south.
Consider a Co-Op Business Model
You may be familiar with the co-op model through a local co-op market or credit union. When you choose a co-op business model for your new venture, several people have joint ownership and will meet regularly to vote on business decisions.
A co-operative business model is a unique alternative to traditional businesses that help you fund your business more quickly. And depending on the type of cooperative, business decisions are made not only to help your business thrive, but also to improve your community. Plus, since owners have a vested interest in the business, they’re more motivated to grow your client base, products and services.
You don’t always have to go to a traditional lender to fund your business. There are ways to secure capital for your business without stepping into a brick-and-mortar bank!
The views and opinions expressed are those of the guest author and do not necessarily reflect the views and opinions of MindShift.money.
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Jackie is a personal finance writer and content marketer. She is passionate about telling money stories and spreading financial literacy to a mainstream audience.