Small business funding sources

• May 11, 2022

The financing available to businesses is changing, and the current economic situation can make seeking and obtaining loans seem like a nightmare. There are 7 small business financing sources

 1. Conventional loans

While you may be familiar with traditional bank loans and looking to get away from them, there are still more attractive options on offer for earning capital from banks. For example, SBA funds and small business lending act as alternatives to typical bank loans.

These loans and funds are specifically earmarked for small businesses and entrepreneurs. They usually also offer more attractive terms and less stringent penalties which can be beneficial for startups that are just starting to deal with their financial needs. With these forms of loans, it is important to have a solid business plan before applying.

2. Grants

A scholarship is financial aid granted by the federal, state, or local government. A specified amount of money awarded to an applicant who shows a promising chance of success.

Since grants are money that is awarded rather than simply borrowed, it is more competitive in receiving it. While they are difficult to obtain and often require certain conditions, the grants are incredibly valuable. If you are seeking a scholarship, government options and SBA options are probably the most popular but challenging paths. However, there are resources such as NAV and the National Association of Self-Employed Persons that can help you discover more open options to help make getting the scholarship easier.

 3. Fintech

The recent emergence of fintech lenders can serve as a useful alternative financing route. These lenders typically offer smaller loans, credit options, lower barriers to entry, and only work online.

Some notable options include Kabbage and PayPal, but the trick is doing your research. Each option has its own set of advantages and limitations, which can mean less money available, tied to a particular long-term lender or even higher interest rates. With fintech, companies can take advantage of expanding options for financing, automated accounting, online payments, and more.

4. Crowdfunding

Crowdfunding is another alternative source of funding that is usually useful for product launches. This funding method is similar to launching a promotional landing page to gauge interest; It is a viable way to test the market.

Crowdfunding has many benefits, but if you are interested in following this path, it is important to note that each Crowdfunding site is different. Some only allow funding for a limited time, others require you to achieve your goal to receive any money and some act as long-term community sites. Make sure to read the fine print to really understand that you may get all or nothing if you go this route.

 5. Peer-to-peer lending

Peer-to-peer lending is also referred to as social lending which basically allows individuals to borrow and lend money to and from each other. Think of it as a combination of Crowdfunding, loans, and angel investments.

There are many online platforms that act as promotional services to connect you with investors to gain funds and insight or reach a community of like-minded individuals interested in investing. This type of financing tends to be most beneficial for established companies that are looking to grow and usually require a comprehensive presentation to show.

 6. Venture capital and angel investment

Venture capital or angel investments are individuals or companies willing to inject money into startup companies. They are usually looking for a revenue (you will need an exit plan or a growth plan) or a share of your business.

This type of financing is highly applicable in certain industries (for example, technology, medical, Internet) and usually requires your business to be somewhat turbulent and poised for growth. If this path seems like a good option for you, a solid business plan and presentation platform will be essential here.

7. Pitch competitions

This is another unique financing option that is really prepared for startups or those working within an incubator. Presentation competitions usually require you to be located in a specific area, be in a specific revenue stage, or be part of a group of entrepreneurs.

This type of financing is especially useful for those with an established business looking to grow and is a great way to gain exposure for your business. Don't be discouraged if you're not a tech or medical startup. Depending on where you are, there are often regionally planned or community-led presentation competitions that occur from time to time.