6 Alternative Small Business Financing Options
Keep Your Small Business Growing, Without Going to the Bank
Small businesses have loads of options available to them when it comes to financing. However, none of the options are one-size-fits-all. Finding the best alternative funding sources for your business can be tricky.
Each borrowing option available to small business owners will come with its unique set of pros and cons depending on your own unique situation. that can make the decision-making process easier for you. The best place to start is these 6 popular alternative financing options for small businesses.
1. Friends and Family
It’s tempting to borrow from family or friends as it’s logistically very easy. You won’t need to deal with any institutions, can likely avoid high interest rates and can move the process along faster. Before borrowing money from a friend or family member, work out a budget to make sure you can pay them back within the agreed terms. If not, determine if you’re willing to put the relationship at risk. Remember, don’t skip out on any of the documentation. This is still considered a legally binding agreement – not going through the proper measures exposes both parties to serious liabilities.
2. Government Grants
Canadian government grants are a great place to get started. There’s no cost to your business and the applications can usually be completed within a matter of minutes online. Grant terms are fixed and there’s no guarantee your business will even qualify. If you’re in a rush, this avenue probably isn’t going to meet your needs. You should be applying for all the grants you may qualify for, but don’t count on them for immediate extra cash flow.
Bootstrapping refers to funding your business using personal funds or revenue from the business itself. By doing so, you will be able to maintain full control over the business and have no external debt. However, this proves difficult for young companies when cash is limited. The biggest risk with going this route, is how you place financial risk on yourself. Should the business go under, your personal funds are gone with it.
4. Angel Investors
An angel investor is someone who will give your business an influx of capital during its early stages to help it grow. If you’ve ever watched Dragon’s Den, you’ve seen angel investors at work. Often, angels will exchange their capital for equity in the business. When your business succeeds, the angel’s profit. This means you won’t have to pay them back in the traditional sense and makes managing cash flow easier. Securing an angel investor isn’t easy and is generally only done in the infant stage of the business. If you’re looking to learn more about angel investors in Canada, the NACO (National Angel Capital Organization) should have all the information you need.
Crowdfunding has seen a rise in popularity over the past few years - you may have heard of some of the more popular services such as Kickstarter or Indiegogo. It involves sourcing a small amount of capital from many investors, usually in return for a “perk”. There is quite a bit of work required to set up and fulfill a crowdfunding campaign but it can be immensely successful, just look at Pebble and Coolest Cooler. To find out if crowdfunding is a good fit for your business, check out this Kickstarter guide.
6. Online Business Loans
More and more businesses have been getting business loans online. Compared to a traditional bank loan, the term is usually shorter, payments are made daily, they are easier to qualify for and you can have the funds in your account in as little as 48 hours. However, they also come with slightly higher costs than the banks. Evolocity is a leader in the Canadian online business loan space and can help you decide if it is the right option for your business.
Of all the previous small business financing options, none is perhaps easier to obtain nowadays than an online business loan. Find out “How Getting a Small Business Loan has Changed”.
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