Bye bye banks: a guide to alternative capital raising

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If entrepreneurs are renowned for one overarching characteristic, it’s the ability to think outside the box. Finding the best way to fund your startup is no different: each new business arises from a different scenario to the next, and has a different set of objectives, requirements and aims, so there’s no one-size-fits-all solution to funding. Outside of the most popular options, including bank loans, and seed, angel and venture capital investors (which you can read our guide to here), there are also plenty of non-traditional methods to fund your business.

P2P funding

Peer-to-Peer (P2P) funding is great for individuals or businesses who want to speed up the loan process, or whose credit rating isn’t ideal. They operate through online investment platforms, and consequently have low overhead costs, typically leading to low interest rates. They also have the advantage of having less bureaucratic administrative procedures than traditional bank loans. They work. They function fairly simply: the loan-seeker requests a specific amount (which is normally up to $25,000) at a specific interest rate, and lenders fund all or portions of the loan. The loan is then paid back with interest over a set period of time.

Crowdfunding

Sites such as Kickstarter and IndieGoGo allow individuals, startups and small businesses to raise capital from large pools of contributors, and can create a customer base before your product is even close to hitting the shelves. Crowdfunding tends to be a rewards-based system, obtaining best results when contributors are incentivized with something of value, such as early access to a product or service. On the downside, crowdfunding can take a long time to build the necessary funds, and yiou will compete fiercely against countless other causes to secure your funding. There’s also some legal uncertainty about the regulation of crowdfunding as a funding method, which is not overly problematic at present but could present difficulties in the future.

Microfinance

Microloans are smaller than traditional loans, and often have shorter repayment periods. Typically, they cover up to $50,000 and are repayable over the course of up to 6 years, but can be much easier to obtain than large bank loans. Microfinance initiatives deployed across several African countries have been proven to open up the field of female entrepreneurship and organically grow the economy of their countries.

Internet-based lending

It’s possible to obtain loans from internet-based lending platforms in as little as 1 business day. These sites then gather data about your business’s cash flow and credit history and can deposit the loan electronically into your bank account the following business day. Repayment is also simple, as the loan is repaid through daily automatic transfers from your account. It’s important to pay particular attention to the interest rates, and the terms and conditions of engagement with internet-based loans, as these could land you in hot water with your credit rating should you find yourself unable to repay.

Business Invoice Factoring

If your business income mainly reaches you by invoice, it can sometimes take a while for funds to start coming back to you and can leave you in a sticky situation – especially if working with large corporations who need you to wait for between 30 and 90 days for payment. That’s where business invoice factoring companies come into the picture: they’ll pay you upfront – anywhere from 90-99% of your original invoice amount.

Incubators

Business incubators can accelerate a company’s growth during the start-up stages by providing entrepreneurs with a range of resources and services. These can include shared workspaces, seed capital in exchange for proceeds or partial ownership, networking opportunities and chances to meet investors and mentors, access to a peer community and potential contra-service swapping opportunities.

Contra-service swapping

As your business is finding its feet, it’s not unusual for small businesses and startups to exchange services or goodwill on the basis, with an understanding that the service provider will in time become a paid service used by your company. It’s a great way of outsourcing one-off or infrequent business costs such as legal expenses, ad can help you build your network while you establish yourself.

Live your true purpose
Forest bathing: the Japanese art of destressing

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