According to the Small Business Access to Capital Survey conducted by the National Small Business Association, 53% of businesses are unable to grow their operations without proper funding. This shows that the success of small businesses rests on the availability of capital.
The demand for capital has paved people different ways of acquiring funds to launch or run their business, especially considering that loaning money from banks have gotten more difficult. (23% believe that the terms for banks or credit loans that are currently outstanding have become less favorable, while 29% of businesses believe that their available limit has been reduced.)
Below are innovative ways on how businesses can gain greater access to capital.
Ideal for: businesses willing to sell their stocks.
Small businesses may choose to put their shares up for grabs in exchange for funds. This type of loan is common among people looking to raise money for their startup idea. Investors are willing to sponsor business ideas that they think will succeed in the long run. Also, having a stable credit record helps increase your trust ratio so financiers will be more encouraged to shell out cash for your business.
A possible downside of equity financing is when investors begin to impose their ideas to the operations, which may disrupt your long term business plans.
Community Development Financial Institutions
Ideal for: startups that are able to pay loan but currently have a bad credit line
CDFI are not as accessible as other mainstream loan opportunities – you may have to network with entrepreneurs and local businesses to find CDFIs nearby. Getting your loan approved in this avenue for capital is easier and less expensive, but you will have to find an institution that specifically shares your focus and agenda. To apply, click here.
Ideal for: businesses looking to loan strike a deal straight with the investor
The great thing about this type of capital access is the absence of a third party connecting you from the investor. Since there are no banks or financial institutions to serve as middlemen, businesses and investors can simply strike up a deal for the loan grade and payment scheme that suits their convenience. Lending Club, Wikiloan, and Prosper are examples of peer-to-peer lending sites that connect small business owners to lender willing to invest.
Purchase Order Financing
Ideal for: resellers with customers who have placed large-quantity orders on limited products
The P.O. lender will serve as the third party who will pay the supplier for the products ordered by the reseller’s customer. The products are then shipped straight to the customer. If the customer pays on the spot, the P.O lender will collect the money and split the sale with the reseller. For payment based on terms, the lender will offer a factor loan, referring to the act of buying the invoice from the reseller at a discounted price. The lender will be the one to collect the full payment from the customer.
Getting capital through purchase order financing is relatively easy and more affordable as opposed to other for-profit lenders out there. On the other hand, the lender risks his or her money to the customer who can pull out the order from the reseller.
For more information about this type of microfinancing, visit PurchaseOrderFinancing.com.
Business Plan Competitions
Ideal for: people with start-up ideas
If you have exhausted all alternatives on applying for a loan from different lenders and institutions, join business contests for a chance to win a cash prize which you can use as capital for your startup. Each contests offer different prizes and terms of entry, so read the details first before you consider joining. Visit Biz Plan Competition for a list of contests near your area to participate in.