Whether you are just starting your business or want to grow a small business, you’ll find that traditional lenders are reluctant to deal with you. They rarely issue small loans for hundreds or thousands of pounds. They’re likely to reject loan applications for revolutionary or novel business proposals. Few will issue a loan when you’re in a cash crunch, since the perceived risk is too high. Fortunately, advances in technology have opened a number of alternatives. Here are 4 alternative financing options for webpreneurs.
Peer to peer lending is most commonly used to raise money for personal reasons. However, it can be used to raise money for your business. You would set up an account on a peer to peer lending site that connects lenders and borrowers. They offer this service in exchange for a fee of one to four percent of the loan amount.
The sites may allow loans up to hundreds of thousands of pounds. However, you have to meet strict requirements to qualify for these larger loans. Common requirements include being in business for at least one year, a credit score of over 600, and a certain minimum annual revenue.
A common piece of advice to people who want to start a business is “don’t quit your day job”. Working on your business on evenings and weekends is stressful, but it means you can still pay the bills with your day job as your grow your business. If you still have a regular income, you can always consider short term Payday Loans from a site like BingoLoans as a way to raise capital.
One benefit of this approach is that the loan isn’t dependent on your personal credit score, your business plan, or your number of paying customers. The other is that the money is available almost immediately. Nor do you have to give up equity. Furthermore, this type of loan is available when you don’t have enough revenue to qualify for a merchant cash advance.
Equity based crowdfunding is a rather new innovation. It is similar to peer to peer lending sites in that you can be connected to potential investors through a platform. These platforms allow you to raise capital in exchange for a modest fee based on the deal’s worth. If you make your case, you can sell shares years before you could sell shares on the stock market. You could use these sites to handle selling equity in your business to friends and family as well as angel investors and venture capitalists.
There are several downsides to this approach. You dilute your ownership of the business, and this could affect your control of it. Furthermore, it can limit your ability to sell shares in the future. Nor are all businesses structured in a way that this is a possibility.
A line of credit is similar to a credit card. You can charge whatever amount you need up to the loan’s limit. The payments are based on the debt level at the time. Lines of credit aren’t available if you have poor credit, or you may have to put up collateral. If you’re borrowing against your home to fund your business, you risk losing your home if you can’t make the payments.
Don’t despair if you were rejected yet again by a big bank. Small and medium sized businesses have at their disposal a growing number of financing options to consider, and you can find one that is right for you.