5 Innovative Ways to Fund Your Small Business

The two things most small businesses have in common is a need for capital – whether it’s to fund their start-up or get through a temporary cash crunch. The second is unpredictable cash flow. If bills or employees need to be paid or a sudden opportunity arises, they need access to cash now.

Banks, though they are the preferred option as a reliable and low-cost source of financing, may require a longer credit or operating history than you have. Investors willing to invest in a business with unpredictable cash flow are scarce, and borrowing from family or friends can become awkward, especially if you need to return to that well more than once.

To ensure the funds will be available when needed, small businesses need a reliable source of capital regardless of their credit standing or length of operating history. Here are five ways small businesses can quickly access capital.

Crowdfunding

Online fund-raising platforms like Kickstarter, Indiegogo, and GoFundMe have become popular go-to sites for businesses to raise funds quickly and easily. These platforms provide an avenue for small businesses to solicit donations from a large group of people whom you have never met but are excited about your business idea.

Crowdsourced Lending

Another form of crowdsourcing is through online platforms such as Kiva or Accion, which allow you to raise small loans from a community of lenders. Crowdsourced lending offers people the opportunity to get higher yields on their money than they can get from a bank, along with the satisfaction they are helping to get a business off the ground. While the interest rates are higher for crowd lenders, they are still fairly reasonable for business owners.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is the fastest-growing segment of the online lending industry. A P2P lender creates a digital marketplace that brings borrowers and investors together. The borrowers are typically people or businesses that are unable to obtain loans through traditional methods. Investors are individuals or institutions seeking a better yield on their money than what is available with traditional investments.

Prosper and Lending Club are the two most established P2P lenders catering to businesses with less than great credit. Prosper will make personal loans up to $35,000 that can be used for business purposes. Lending Club has a separate program designed for small businesses, requiring that the business is at least two years old with at least $75,000 in annual revenue. Business borrowers can request up to $300,000 with loan terms of one to five years.

Online Business Lenders

Online lenders such as On Deck, Fundera, and Kabbage cater to young, credit-challenged small businesses, offering two to three day funding up to $100,000. All you need to show is $50,000 in annual revenue and one year of operation, but they also rely on your personal credit score, which must be 550 or higher (credit scores and annual revenue requirements can vary among lenders). They charge higher interest rates than banks, but their repayment terms are flexible.

Asset-Based Financing

Chances are very good that you can get a loan if you have a hard asset with value and a useful life. Of course, the amount and terms of the loan are tied to the value and useful life of the asset. Real property tends to have a longer useful life and appreciating value, which can mean a longer loan term and a more favorable interest rate. Equipment tends to have a shorter useful life and depreciating value, so the loan term might be shorter with a higher interest cost.

Of course, the lender will evaluate all the usual factors, such as credit history and financial stability, which can take some time. However, even if neither is deemed to be in good standing, a loan collateralized by hard assets is more of a possibility than without it.

But Don’t Wait to Start a Banking Relationship

While these are all fast and easy ways to access capital for your business, in the long term, it’s essential to establish a relationship with a business bank where interest costs can be lower. For businesses with solid but fluctuating cash flow, a bank line of credit is typically the best funding solution. A fixed-term loan might be the best option for businesses with expansion plans. It may take time to get your business in a position to work with a bank, but now is the time to start building a relationship by opening a business checking account.