Finance is one of the most crucial elements to kick-start any business venture. Yet acquiring the funds for your startup can be a daunting experience, especially for those with poor credit scores.
Without a doubt, traditional banks and venture capital firms put small-business owners through a long and complex loan application process that discourages many entrepreneurs. As a result, most of these startups opt for other sources of capital.
But unfortunately, there is little framework to protect business owners from unscrupulous lenders and alternative funding organizations that take advantage of upcoming entrepreneurs.
Therefore Small-medium enterprises (SMEs) have to find new, fast, safe, and alternative ways of accessing capital. This article will demonstrate the ideal options for business owners seeking alternative funding.
Try proper networking and chamber of commerce.
First, it’s worth understanding the difference between merchant cash advances and Factor business loans. Tech companies issue their partners with merchant cash advances loans to businesses based on their sales and customer data. In contrast, factoring involves financial companies giving capital to SMEs by buying their invoices or receivable accounts.
Suppose you do not have the necessary network and connections for this funding. In that case, joining a local Chamber of Commerce is important as attending local business groupings and trade conventions. These avenues of business consultation will inform you on which trends and companies suit your business and how to get funding in the shortest time possible.
Avoid depending on Government capital funding.
The Global pandemics saw most traditional banks opt to give out huge loans to established businesses and abandon the SMEs market. Instead, the government offered to help small entrepreneurs with funding to sustain them. As a result, the paycheck Protection Program (PPP) and government-backed economic injury disaster loans (EIDL) became implemented to assist small businesses. But the funds were later distributed majorly to multi-million-dollar businesses.
The criteria for accessing the funds were hurdled up with hostile requirements. For example, Jp Morgan could not issue any loan below $1,000 and could mainly attract established businesses when distributing these funds.
Raising debt is better than selling equity.
Generally, taking debt to finance your startup is always better than first selling your business’ equity. By selling equity, you transfer some or most control of your enterprise, which involves investors making decisions for your business. Besides, most of these investors may not have the expertise for your specific business idea and would pump funds to areas they feel would benefit them.
On the other hand, the debt will only require you to pay back the borrowed funds plus the agreed interest. Therefore you maintain sole ownership and decision-making while enjoying little interference from your investors.
For entrepreneurs to get quick-working capital with an affordable payback scheme, they should know exactly how much they need and target the right investors. In addition, it’s important to have a worst-case scenario in hand and start small, lean, and look for ways to reduce your expenses.
Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.