Three Alternative Methods for Financing Your Start-Up
Tue, 07/29/2014 - 11:51am | by Guest Contributor
Credit just isn't available the way it used to be. It's amazing to think that only ten years ago, any man or woman off the street could get a little start up cash from a commercial bank with a half-baked business plan and a warm smile. Before the credit crunch caused by the 2008 financial crisis, a young entrepreneur looking to start an ambitious venture could secure a sizable loan without a job, income or assets.
How quickly things change. Even though certain sectors of our economy have started to rebound, the credit markets have been slow to thaw. If you have a great business plan that you're just dying to realize, securing financing probably seems like a major stumbling block. It's true that traditional banks are less receptive than they once were, but if you're willing to think outside the box there are still plenty of alternative methods for financing your start-up.
If the traditional lenders have already turned you away, explore one or all of these three innovative options.
1) Nonbank Loans
Commercial banks aren't the only institutions in the lending business. Non-banking businesses provide start-up capital to eager entrepreneurs when traditional banks aren't willing to step in. These nonbanks arose to pick up the slack for commercial banks in the wake of the financial crisis. Most of these financing institutions are revenue based, like Seattle, Washington's Lighter Capital. Lighter Capital offers loans ranging from $50,000 to $500,000 in exchange for 6% of your start-up business' monthly revenue. This fee is paid out until the principal on your initial loan is paid down. Nonbank loans also generally require a warrant ranging from 1-5% of your company. If you can't qualify for a traditional commercial bank loan, borrowing from a revenue-based company can be an attractive option.
2) Credit Unions
After watching all the bank failures in 2008 and 2009, many individuals and small businesses decided to take their money out of traditional commercial banks and put it into credit unions. Unlike banks, unions are member-owned institutions. These financial cooperatives offer services similar to those offered by commercial banks. At your local credit union you can open a checking or savings account, manage your investments or apply for a small business loan. Many credit unions are actually eager to help local entrepreneurs. It's generally part of their mission to promote economic development and help foster healthy business communities. If you're a citizen in good standing, you may have more luck applying for quick cash loans with your local union than with a big, corporate bank.
3) Venture Capital
Venture capitalists invest in ideas. These highly trained financial professionals earn their fortunes by listening to business plans and investing in the ones they believe in. If your plan is well researched and ready to go, consider preparing a venture capital presentation and seeking independent financing. This route requires a fair amount of salesmanship, but the rewards are ample. If you can make a room full of investors believe in you, then you can leave that room with all financing you need to make your dreams a reality.