If you get paid by your customers via invoices, invoice financing (which is different from invoice factoring) is a convenient, albeit usually expensive way to avoid cash flow issues caused by long invoice cycles. This is a speedy option-you can get your financing in as little as a day-that requires little paperwork.
7. Crowdfunding
Popular crowdfunding platforms like Kickstarter allow anyone with a vision, including entrepreneurs, to raise money for their project or venture.
- Rewards (e.g. Kickstarter, Indiegogo)
- Debt (e.g. Kiva)
- Equity (e.g. Wefunder)
A business startup seeking capital through crowdfunding will require the business owner to share their business goals and objectives with a large group of people in hopes that multiple people (the crowd) will help fund their request.
These campaigns take lots of marketing effort, but the end reward, should you raise your funds, is startup funding and validation of your business idea by many potential future customers for your business. It’s worth noting that equity crowdfunding may be a more accessible funding option than angel funding or venture capital for businesses looking to raise up to $5 million.
8. Line of Credit
Business lines of credit work a little differently than business loans: rather than you getting a lump sum of cash up front, you are approved for a certain amount of capital that you can borrow from at any time.
9. Short-Term Financing
Another option, especially if you don’t qualify for traditional financing, includes short-term loans. These tend to have-you guessed it-short repayment periods, typically of a few months to a couple of years. They may have higher interest rates than other options listed here, but also less stringent requirements to qualify.
10. Personal and Friends/Family Funding
Yes, personal funding is a viable option and is one of the ways many small business owners access capital. But using personal funds or personal loans is a gamble, and you’ll need to do a solid job of calculating all of your costs so that you don’t run out of money before the business can support itself.
Even if you use personal funds to start, we advise you to start taking steps to establish business credit right away. That way you can start to leverage business credit and access more capital in the future. The business should be able to stand on its own without commingling personal assets and credit. There are a few different options when it comes to personal funding:
- Personal Credit Cards: if you can’t secure a business credit card (our preference over a personal card), a personal credit card (or two) with a reasonably high limit can help you get those first few purchases and your business underway. Keep a close eye on your credit utilization and pay your bills on time, because putting business expenses on personal credit cards can hurt your personal credit scores.
- Savings/Home Equity: Dipping into your savings is an even riskier business, but if you have a good amount set aside this could be the cheapest option for you. Borrowing against your home equity is a cheap option but very risky.
- 401K/ IRA Savings: You may be able to withdraw funds from your retirement plans, borrow against a 401(k), or use a ROBS plan to shift retirement funds to your business. Keep in mind that it may not be wise to bet your whole retirement savings on your brand new business.
- Friends and family: Many businesses have been funded with the help of family members. In fact, it’s one of the biggest sources of startup capital available to early-stage businesses. Tread carefully, and don’t apply pressure, but if they’re willing, family can be a good, positive backing for your new venture. (Another way to approach it is to ask them to be the first backers in your crowdfunding campaign.)