Five alternative ways to fund your business in 2020
If you want to get ahead in the business world, but don’t want to tie yourself into a long term, high-interest bank loan, what are the alternatives? What if you have a less than perfect credit score and can’t just get a traditional loan in a hurry? Are there are alternative funding options that you can consider? The good news is that there is.
Taking an alternative approach to funding your business can help you to cut through all the red tape often associated with funding. After all, you probably don’t want to wait around for weeks on end to hear whether your loan has been approved or not. And you probably don’t want to be tied into a five-year loan. Let’s take a look at how you can fund your business in an alternative way.
Alternative options for funding your small business
2020 is here and along with it comes great new business ideas and growth opportunities. Of course, new projects and growth opportunities require funding. Below are a few alternative funding options that you should consider for your business this year.
1. Crowdfunding
According to Nesta, there are more than 65 active crowdfunding platforms in the UK. If you have ever heard of the Kickstarter platform, you have heard of crowdfunding. Crowdfunding is particularly exciting for the new entrepreneur with an interesting, exciting, or innovative idea. Such platforms allow you to present your business idea or concept and request funding in return for something else. The reward could be a mention on the website, free products, samples, or discounts on the item/service when it is eventually released. Popular crowdfunding platforms used by UK based entrepreneurs include the likes of Crowdcube, Indiegogo, Trillion Fund, Funding Circle, Kickstarter, and Angel List. You could have your entire business capital raised or project fees collected with a crowdfunding campaign.
2. Quick personal loan
While most lenders won’t specifically offer a personal loan for business purposes, you can still use personal loan money to fund your business. You can apply for a quick loan if you need to buy stock to get a new business idea started or even to pay for a new business project coming up, instead of spending limited cash flow. An unsecured personal loan is a good option as it is also offered to people with a poor credit rating. It can be applied for in just a few minutes online, and is usually paid out within 24 hours. Because the amounts are typically limited to £5,000, they can easily be paid back over 24 months. A quick unsecured personal loan also comes with limited requirements attached, which makes it an attractive alternative funding option to sole proprietors and start-up entrepreneurs. You simply need to be a UK citizen of 18 years or older, have an active bank account, earn an income of no less than £700 and of course, be able to afford the monthly instalments.
3. Invoice financing
Invoice financing is a great option for businesses that send out regular invoices to the same customer base. If you have never heard of invoice financing before you might be wondering how it all works. The Telegraph does a good job of carefully explaining the different types of invoice financing available in the UK. It’s well worth a read. How it works is that the business will create the customers invoice and send it on to the invoice factoring/financing company. The invoice amount will be paid immediately, less a “service” fee which is a certain percentage of the invoice amount. When the client pays the invoice, they are actually paying the amount directly to the invoice factoring company. The convenience of this is that you don’t have to wait for invoices to be paid and the factoring company will completely handle all of your creditor department functions.
4. Angel investors
Angel investors are individuals who provide business capital in exchange for equity in the business. This can be quite helpful if the investor is experienced in the business world and the same field as your business as he/she could be a great mentor in all aspects of your business. For some entrepreneurs this particular funding option works really well, but for others it’s not so convenient because they have to render a share in their business and give another individual a “say” in the operations and future of the business.
5. Merchant cash advances
A merchant cash advance is a popular option for a business that receives most of its payments via credit and debit cards. How it works: the lender will provide the entrepreneur with a cash advance. The loan is then paid back by means of a small percentage of each and every card payment. Of course, there are terms and conditions that come with such a loan and it is important that you know what those terms are and that you agree with them. While this isn’t the cheapest form of business funding, it is easier to get than a high street bank loan and helps many individuals who have a poor credit record that are hoping to start a business or grow their existing business.
Last word
If you are looking for alternative business funding options, consider the tips above. Regardless of which option you choose to go with, you can expect to reap the rewards of a cash injection when your business needs it most. Whatever you do, make sure that you consider all the options available to you and only take on a funding option that you are realistically able to afford.
