If you are struggling to get a bank loan, that doesn’t mean you have to give up on your dream of starting a small business.
Nowadays there are many more alternatives available to the budding business owner. In fact, since so many are interested in striking out with their ideas, there are lots of options that accommodate new businesses specifically, like peer-to-peer lending and caveat loans for small business owners.
So rather than putting a pin in your plans for a new profession, check out these alternative funding methods to try.
Caveat Loan
For a short term loan, a caveat loan might suit you. You secure these loans with an item of collateral – a car, a house, an expensive watch. This will be what you’ll pay with if you can’t pay back the loan. Caveat loans tend to come with higher interest rates, and suit specific situations where you know you’ll be able to pay it back in a certain amount of time. If you’re not sure whether a caveat loan is for you, it’s best to consult a professional, such as a financial advisor.
Traditional loans
Even if you’re not eligible for a standard bank loan, you may be eligible for a specialty small business loan. These are drawn up with entrepreneurs in mind. To apply you’ll need a solid, detailed business plan to give the bank a strong idea of your business’s potential – which you should draw up for your own consideration anyway. And as a bank loan tends to give the most attractive lending options, this should be one of your first ports of call when considering external funding.
Grants
A grant is not a loan, but money given to a promising applicant. Grants tend to be awarded to businesses within a certain industry that interests the Australian government for its future – for example, preventing disease in livestock. Grants are given to a wide variety of businesses, so it’s worth seeing if you might be eligible. The caveat is that they are highly competitive and require considerable preparation to be a strong contender. Still, this is one of the most attractive forms of funding since you don’t need to pay it back, so take a look at the government grants and programs list to see if any suit your business.
Fintech
Financial technology is a catch-all term for a variety of digital tools. Companies like Kabbage and PayPal offer credit and loan options that most people are eligible for. But each of these options has its own benefits and downsides. These can be anything from automatic payments, to long-term lending commitments. When considering a fintech option, take your time to study the fine print, or you may find a few undesirable outcomes down the line.
Crowdfunding
Not only is crowdfunding a great way to secure the sale of a batch, it provides you an understanding of your audience and their interest in your product or service. The downside is that this method relies entirely on advertising. You’ll have to create videos, prototypes, and all sorts of content to convince the viewers that your business is worth contributing to. You’ll also have to market your business and crowdfunding campaign extensively to your target audience.
If you’re not familiar with advertising and don’t have a strong following, you’ll have to bring in an advertising team to do just that. So, for a product that is ready to sell, with a consumer base ready to buy it, crowdfunding is the ideal situation, but otherwise it means considerable work done outside of your business’ expertise, and may end up costing you more money than you raise.
Venture Capital & Angel Investment
Venture capitalists (or angel investors), are people or companies looking for a business idea with a strong potential for growth. These companies tend to be within the tech and medical fields, but there are exceptions. In general they are looking for a new idea that will be disruptive within its marketplace, allowing for considerable returns. If this sounds like it could be your business, put together a pitch deck and a business plan to shop around to venture capitalists.
Peer-to-Peer Lending
A vague combination of crowdfunding and venture capital, peer-to-peer is lending between other people. Upstart, Avant, and Zopa are a few of the companies that handle these sorts of arrangements. The process is similar to pitching to investors, where you’ll target your promotion campaign to select business people who are hoping to make strong returns. You may even develop strong business relationships that you can profit from later on.
Pitch Competitions
A pitch competition is just as it sounds – you pitch your business idea in front of investors and the best pitch wins funding. If you believe your business plan and pitch deck is sound enough for you to risk your money on, a pitch competition will quickly show just how prepared or unprepared you really are. This can make it a valuable tool for receiving critique of your business plan, and adapting where investors see risks.
Final Words
No matter the funding strategy, a strong business plan is necessary for success. Write it, rewrite it, pitch it, and edit it based on the responses. Your business plan will be the foundation of your new endeavour, so the stronger it is before you secure funding, the lower the risks will be to both you and investors.
And don’t forget, you should trust your lender or investor as much as they trust your business plan. Don’t settle for the first offer you get – ensure you feel reassured about the validity and trustworthiness before signing any contracts.