When banks turn down an application for a small business loan, in which small neighborhood banks do at least 50 percent of the time by (and even more for large corporate banks), what is a small business owner to do. Despite hearing the “no,” the business still needs the money it was originally seeking to best operate and grow.
Funding For Small Business Gets Creative
Fortunately for small business owners, alternative options for small business funding are plentiful, such as factoring accounts receivables or invoice factoring, unsecured business loans, inventory financing, and a new to the scene financing option called equity-based crowdfunding. Originally stemming from fundraising, crowd funding is primarily powered by the web particularly social media and sharing.
It began by getting regular, everyday people to individually contribute small amounts of money to a cause or nonprofit so that the little amounts would add up to a large total. The contributors may receive a non-financial incentive, such as merchandise, gifts, and gift cards as well as that feel-good feeling associated with contributing to a good deed.
Funding Small Businesses While Benefitting Themselves
Equity-based crowd funding is similar except this small business funding by the investor does involve a monetary payback or reward. In addition those involved are usually more affluent investors rather than everyday Joes. Those who provide equity based crowd funding can get back a piece of the company, a percentage of profits or more. Most of those who provide this sort of small business financing work with startups that they see as having a bright, high growth potential (high-tech, for instance, is popular).
By providing this seed money, the investor is looking for a long term partnership of sorts with the startup, as well as more immediate returns on their initial investment. Oftentimes, the small business finance source provides mentoring, informal counseling as well as networking opportunities to the startup. This way the wet-behind-the-ears business can gain valuable experience and insight and be better prepared to effectively manage and growth their enterprise.