Are you facing financial constraints in your efforts to expand your business? Many entrepreneurs encounter financial challenges as they grow and expand into new markets. Historically, loans from banks were the solution to this issue for small businesses. Unfortunately, not many companies can navigate the stringent bank loan requirements to access these funds.
Here are five alternative ways you can finance your company for expansion:
1. Find an Angel Investor
Partnering with an angel investor who will invest in your company either for a one time occurrence or for some ownership of the company is a great way to access capital for growth. When seeking an angel investor, apply the contemporary rules of being succinct. Have a clear strategy and avoid jargons. With tough economic turmoil, finding an angel investor may be a tricky route that calls for a strategic approach. Platforms such as angel.co are a great way to access a large networks of angel investors across the world.
2. Try Factoring Financing
Factoring is a form of financing where companies sell receivables at discounted prices to get cash in advance. It can be useful for businesses that have not established comprehensive credit records or manufacturers who must fulfill orders long before payments. You can, for instance, pay a 2% fee that is equivalent to 24% annually. Many firms are now making factoring competitive to improve their bottom-line.
3. Consider Crowdfunding
Crowdfunding sites provide fun and effective means of raising funds. Set a goal about how much you'll want to raise within a set period. Your family, friends and others then pledge various amounts of money on the site. However, traditional crowdfunding is not a long-term funding alternative. Platforms like Kickstarter and Indiegogo are great for launching new products to market but when it comes to scaling and existing company, they typically come short. Additionally, since the capital typically comes from the company's existing networks and new customers, traditional crowdfunding has a high marketing cost that typically isn't considered.
4. Secure an SBA Loan
With banks shying away from committing their money to smaller companies, the government attempted to provided a alternative through their Small Business Administration (SBA) loans. While SBA loans are supposed to be available for all small businesses, there are still qualifications that limit who has access to them. First, the SBA only guarantees loans to businesses that can't afford the money they need using other means. That means you’ve applied for loans from other lending institutions and have been turned down. Also the business must meet the definition of small business according to the government's specifications. Their definition of what qualifies as a small business actually closes the door on many companies. There are typically additional criteria that need to be met as the amount you're applying for increases.
5. A Combination of Solution 1, 2 and 3
A new solution has emerged within the last two years. A mixture of the first three solutions, crowdfinancing is a great way for growing companies to access capital to expand their business. Platforms such as Kickfurther allow scaling businesses to crowdfund their inventory needs from individuals across the United States. Similar to factoring, Kickfuther only works with the funding of physical goods. With crowdfinancing, the capital for expanding businesses comes from a crowd of individuals across the United States. Unlike traditional crowdfunding, this new solution typically involves an existing community that is eager to partner with growing brands meaning there is less emphasis on marketing. Additionally, crowdfinancing has an emphasis on funding existing brands that have a track record of success instead of unproven ideas that have yet to show product-market fit.