3 Innovative Funding Options for Small Businesses

Small businesses have always had to be creative about raising money.

For a business to succeed, startups and small companies need funds to get through the initial stages of growth. In the past, many entrepreneurs turned to family and friends or personal savings. However, this is becoming increasingly difficult as borrowing rates remain low, and banks are tightening their lending practices.

Undeniably, 2020 has been a challenging year for most businesses, especially the smaller ones. While the pandemic was harsh on their financial reserves, the post-pandemic recovery and growth have also been slowed down, owing to lack of capital and usable funds.

With smaller businesses heavily reliant on additional capital for managing inventory, cycling investment, upgrading software solutions, and paying invoices, it might just be the right time for them to rely on innovative funding platforms.

Why not traditional loans and conventional financial institutions?

Traditional loans require that you have some capital or assets to borrow against. While you may not need to put up collateral, depending on the bank, lenders will conduct their own credit check prior to approving your loan. Be aware that traditional loans come with high-interest rates and hefty fees. In addition, these loans typically require a detailed business plan and financial projections of your business for the next couple of years. If you’re seeking a traditional loan, be sure you can explain how the loan proceeds will be used.

This is why it’s necessary to consider innovative funding avenues for getting through the tougher phases. Let’s take a look at three innovative funding options that are available to small business owners.

Online lending

While online lending might sound expensive, it’s one of the most diverse funding blankets for SMEs, startups, and smaller businesses. In addition to convenience and financial ingenuity, online lenders are also known for their competitive interest rates. However, as the commission rates are often higher than standard banking loans, the approval process is expected to be far more lenient.

Therefore, with online lenders to rely on, businesses can get away with minimal documentation. However, regardless of the funding source, proper tax filing is necessary, and you can click here for more insights into the brackets and calculations.

Crowdfunding

One of the best ways to raise capital, crowdfunding is more of an investor-centric income generator, which thrives on the conceptual brilliance of a particular business. The best thing about this funding source is the availability of multiple repayment schemes.

Then again, crowdfunding isn’t easy to procure and requires the business to project inspirational stories to get the desired results.

Invoice factoring

This is one of the most sought-after funding sources for B2B businesses. A majority of B2B clients need to make peace with pending invoices, which often restrict the vital cash flow. These businesses can showcase the history of payments made to them for getting the desired sum of money from concerned organizations against the pending invoices.

However, if you, as a business owner, are relying on invoice factoring, it’s necessary to read the terms and conditions properly while making peace with higher fees. Each of these funding sources can act as a growth elixir for smaller businesses looking to recover and grow in the new normal.

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