Don’t count on much government support especially in these days of high debt and budget cut backs. Instead, you’ll need to cast your net wide and hope that one or more of the following options provides the financial backing you need.
The Small Business Administration provides microloan funding through “specially designated intermediary lenders” such as nonprofit community-based organizations. Eligible buyers can apply for loans for up to $50,000, monies that many small businesses and certain not-for-profit childcare centers can use to start up or expand their businesses.
Funds may be used for working capital, to purchase inventory, order furniture or fixtures, and purchase machinery or equipment. Rates vary, but typically range from 8 to 13 percent. Repayment terms are set by the intermediary lender.
With traditional financing options limited, small business owners may turn to their peers to obtain financial support. So-called peer-to-peer lending is an online option that brings lenders and borrowers together. Prosper and Lending Club are two of the better known sites; Lending Works is new.
Typically, borrowers list their loan request on a lending platform, asking from $2,000 to $35,000. Lenders are not required to lend the full amount and can obtain a fractional share for as low as $25. Fees can be high, ranging from 6 to 35 percent depending on your credit score notes the Wharton School.
For small businesses with significant assets, loans based on accounts receivable and inventory may be used as collateral. Essentially, you’ve established what your future revenue will be and have put your revenue out there for immediate access.
The way that these loans work is that lenders will give you funds based on a percentage of your secured assets value notes Entrepreneur. The percentage for eligible receivables ranges from 70 to 80 percent; for finished inventory it is usually 50 percent.
Sometimes you need an angel on your side to fund your enterprise as in an angel investor. They’re not the same as venture capitalists, rather they’re people who tend in to invest between $25,000 and $50,000 and want to be involved in your operation notes Bloomberg Businessweek.
Angel investors like to get into a business early and may pool their money with other investors. These people meet regularly — monthly or quarterly — in a bid to bring together their “deal flow, resources, and capital.” You’re more likely to attract angel investors if your returns are 10 to 20 times the amount invested.
Just as peer-to-peer lending has its Internet angle crowd funding does too. Also known as crowd financing, crowd equity, and crowd-sourced fund-raising, crowd funding supports a variety of activities including politicians, causes, citizen journalism, disaster relief, and more.
You can also raise money for your small business by listing your business plan. To entice contributors, consider giving out perks in return for money. Those perks should be cool. Include a short video pitch and explain what investment you have made in the business. You need to explain how the money received will benefit your business.
Of course, you can ask people closest to you to contribute money as well. Family, friends, and business associates are natural funding sources, individuals that know you and may be interested in holding a stake in your business.
See Also — 8 Hot Entrepreneurial Opportunities
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