4 small business bank loan funding alternatives

 In Small Businesses & Startups

Small business bank loan funding is decreasing, according to the latest figures.

However, there are alternative funding options for SMEs, start-ups and entrepreneurs looking to expand their business activities.

Alternative small business bank loan funding options

These are four of the alternative small business bank loan funding options available today:

1. Crowdfunding

Conventional wisdom has it that a business develops a product or service, then recoups costs (and, hopefully, generates profit) through subsequent sales.

With crowdfunding, you pitch the initial idea to the public using a crowdfunding site. If people like the concept, they’ll make a funding contribution to get the project off the ground.

On the crowdfunding site, you explain your product and business ethos. You also state the total amount you’re looking to raise and offer an incentive to persuade people to make a contribution (such as a discount on their first purchase).

Providing the funding goal is reached, you get to keep the money pledged and invest it in your company.

2. P2P lending

Person-to-person (P2P) lending is a means of debt financing that comes from people, rather than financial institutions.

It involves registering the following details on a lending site and waiting for lenders to introduce potential investors:

  • General business info
  • Total sum required
  • Reason for loan
  • Net income of business

Your credit rating will define the interest rate, so make sure it’s healthy before applying. Sign up using a P2P lending site such as Funding Circle and Zopa.

3. Bootstrapping

Bootstrapping is a viable, but potentially risky means of generating funds. Essentially, bootstrapping involves using your own money to fund your commercial operations.

The advantage is that you get the opportunity to test your product or service free from the requirements of third-party lenders. This gives you scope to move in your chosen direction and take ownership of the project.

However, if the venture proves not to be as profitable as you’d expected, you’ll end up paying out of your own pocket.

You can operate based on the funds you deposit in your business account. However, you should look to move away from sole proprietorship as soon as possible so that you aren’t held liable.

4. Partnership

A business partner can really help to share the financial burden.

Business partners take a more active and collaborative approach than investors. Whereas investors are likely to focus more on short-term profitability, a business partner would work with you to grow the business long-term.

They should bring investment to the table, but also a complementary skill set that can push your product or service further.

Things can go wrong, though. To avoid a potential headache, put together a legal agreement that covers the following factors:

  • Individual responsibilities
  • Ownership stake
  • Profit-sharing percentages
  • Departure agreement

Small business lending may be down among the major banks, but there’s never been a more diverse set of options out there for small business owners attempting to secure funding.

Call on the friendly team at 3 Wise Bears for more expert small business funding advice.

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