(Newswire.net — November 16, 2022) —
Are you starting a new venture? Perhaps you need to expand your operations into new markets, and finance is a significant barrier. Or your current business model may be under stress, and you need capital urgently to make payroll or keep your business afloat.
Whatever your needs, different financial solutions are available – from traditional bank loans to venture capital financing – and in this post, we discuss five sources for your small business.
1. Invoice Factoring
If your business is waiting for invoice payment from clients, invoice factoring could be a solution worth considering. Invoice factoring involves selling your invoice to a factoring company for instant cash. But before you access the money, the factoring company must determine the creditworthiness of your client.
Ensure that the invoice you intend to sell is from a creditworthy client, like the government. By factoring government invoices, you get access to 70-90% of your invoices’ value within one day. So you can use the money for urgent business needs, such as paying staff salaries or purchasing inventory.
2. Government Contract Financing
Federal government contract financing helps small and medium-sized businesses obtain working capital for federal government contracts they win from the federal, state, or local government.
Although working with the government can be lucrative, small businesses must fund their operations before taking on a project. Additionally, government agencies can take up to 60 days to pay invoices.
With government contract financing, you can get the working capital you need to successfully bid and monetize your invoice after completing the contract.
3. Crowdfunding
Crowdfunding is an alternative way to finance your business using small contributions from many investors. Crowdfunding involves creating a website for your business and inviting investors to contribute a certain amount in exchange for different rewards.
However, if you’re already operating a business and need finance urgently, you should consider equity crowdfunding. Equity crowdfunding involves raising money from many investors in the form of equity in the company, similar to an initial public offering (IPO). Your options include the following:
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Entrepreneurs seeking investment funds on Kickstarter
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Equity crowdfunding on Crowdcube
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Angel investors on AngelList
4. Business Loans
Business loans are one of small businesses’ most common sources of capital. Traditional bank loans may be challenging because commercial banks often require collateral (such as business assets) to support loan repayments.
Other requirements for bank loans include high-interest rates and lengthy application processes. But commercial banks are not the only source of business loans.
Alternative and online lenders offer business loans with faster application processes and flexible requirements than traditional banks. They typically provide fast funding and streamlined applications. However, lenders often charge higher interest rates because of speed and convenience.
Alternative lenders offer loans averaging $80,000 on average. Small businesses that don’t need large loans can benefit from this type of loan.
5. Venture Capital Financing
Venture capital financing is a type of private equity financing venture capitalists provide to startups and small businesses with high growth potential.
Venture capitalists are typically investment firms or individual investors specializing in investing in high-risk, high-growth companies. They provide these companies with capital to grow and expand their operations.
In exchange for their investment, venture capitalists typically receive a minority stake in the company. They also often take an active role in the company’s management, providing guidance and advice to help the company grow.
Conclusion
Financing a small business can be costly and time-consuming, especially if you need the money urgently. But traditional bank loans and venture capital financing may not be your only options: Other options like invoice factoring, contract financing, crowdfunding, etc., can help you access the quick funds you need to grow your business.