Home Finance 11 Best Startup Business Funding Alternatives That Still Work

11 Best Startup Business Funding Alternatives That Still Work

The key to success is finding the right balance between obtaining the necessary funding and retaining control over your business.

17
0
The best business funding alternatives
0Shares

One of the biggest challenges for a startup business is getting adequate funding but there are alternatives. Small business loans alternatively can be a game-changer, offering you the capital to take your business off the ground.

According to the 2024 Small Business Credit Survey, small businesses have continued to face financial hardship. Only 40 percent of businesses less than five years old got funding, whereas 53 percent of businesses aged six to 20 were approved. 36% of firms under five years old were also more likely to receive a loan from friends and family or use their money.

Before we discuss the various business funding alternatives that still work, let’s define what a startup business loan is.

What is a Startup Business Loan?

A startup loan is any loan designed to help entrepreneurs finance their businesses. This money is for running the day-to-day activities of the business.

Business loans are usually offered by a range of providers and may be secured or unsecured.

Alternatives to Startup Business Funding

Getting a loan for a small business can take a while, there are options to try while waiting. Here are the top 11 business funding alternatives any startup founder can explore. These business funding options are guaranteed to work.

1. Self-Financing

Self-financing is the number one form of alternative financing to business startup loans. 77% of small business owners use their own money or assets to fund their businesses.

Using your own money doesn’t take away the necessity of having a solid business plan in place. A business plan helps you to see your specific needs and determine how much money you need.

How Do You Go About Bootstrapping Your Business? 

2. Funding from Family and Friends 

Another option to consider is asking family and friends for money. This can be a great way to get the funds you need without having to go through a traditional lender. Investment from friends and family should be a professional addition to the business.

How to Approach Family and Friends for Startup Funding

Asking your loved ones for money can be a tricky proposition. You don’t want to put them in a difficult financial position.

Here are a few tips to help you approach your family and friends.

  • Have a solid business plan.
  • Be clear about how much money you need.
  • Explain what the money is for.
  • Be honest about the risks.
  • Offer something in return.
  • Have a repayment plan.
  • Be prepared for rejection.
  • Say, thank you.

3. Angel Investors

Angel investing is a form of financing in which wealthy individuals, known as angels, provide capital to startups in exchange for equity. These angel investors tend to be more flexible with their investment terms. This is because they often invest smaller amounts and are more willing to take risks in a startup’s early stage.

4. Crowdfunding 

Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. Many crowdfunding statistics have shown that it’s one of the best business financing options.

It helps fundraisers to collect money from a large number of people via online platforms. Crowdfunding is most often used by startup businesses as an alternative to loans. It’s unarguably one of the best business funding alternatives you can think of.

The most successful crowdfunded small businesses and tech startups are Brewdog, Occulus and goHenry.

Some of the crowdfunding platforms to consider are:

5. Small Business Grants

Business grants offer business owners free money to cover startup and operating costs. Unlike a loan, grants allow business owners to avoid taking on debt because they don’t need to be repaid.

The downside? Check to make sure you won’t need to pay the money back or agree to certain conditions down the road. Not all grants have stipulations, but it’s good to know what you’re agreeing to before you accept the funds.

6. Business Line Credit

A business line of credit works like a credit card, it allows a business to borrow up to a certain amount. It has more flexibility than a term loan because you only get to pay interest on the amount borrowed.

Startups with little to no credit that have been in business for at least six months may be eligible for lines of credit from online lenders but with higher interest rates and collateral.

7. Invoice Financing

Invoice financing uses the money owed to you by customers to secure the loan. It caps the loan amount at 85 percent of the invoices. Your lender advances you a portion of the amount owed, and once your customers pay you, you repay your lender the advanced amount, plus fees.

8. SBA Loans

The Small Business Administration (SBA) is the agency that administers SBA loans. SBA loans offer long-term business loans at low-interest rates and longer repayment terms. They need a lot of paperwork and collateral, investment of time and process but it’s worth it if approved. 

The SBA also has a lender matching tool used to find participating lenders and compare loan offers based on your specific needs.

Types of SBA loans

There are six different types of financing available via the SBA, as well as a handful of additional programs. These are:

  • 7(a) loans
  • CDC/504 loans
  • CAPLines
  • Disaster loans
  • Export loans 
  • Microloans

9. Online Business Loan

Another financing option for a business is via online loans. Lenders are financial services or related fintech companies, though many banks offer online loans as well. Lending requirements are more flexible. A limited credit history, time in business, and annual revenue likely won’t prevent you from securing funding.

10. Microloans

The SBA Microloans program is ideal for small businesses in the startup phase as well as those with plans to expand. They give smaller loans of up to $50,000, The loaner matches borrowers with intermediary lenders.

11. Merchant Cash Advance

A merchant cash advance gives startup business owners alternative loan options to borrow based on business credit card sales. The borrower receives the cash in a lump sum, but the money is repaid using a part of the credit card sales. MCAs work by selling a part of your future sales to have access to cash now.

Final Words

There are many startup business funding alternatives available to entrepreneurs today. It is important to find the one that is best suited to your needs before seeking funding. The key to success is finding the right balance between obtaining the necessary funding and retaining control over your business.

0Shares
Previous article10 Top Interview Tips That Will Land You Any Job
Next article7 Profitable Online Business Ideas for a Busy Stay-at-Home Mom
Amromawhe Tare is an SEO content writer and contributor at EntrepreneurBusinessBlog.com. You can connect with her via [email protected].

LEAVE A REPLY

Please enter your comment!
Please enter your name here