Every business needs cash to survive and grow. Business owners use capital to expand their operations, pay salaries, keep up with software subscriptions, and cover other business expenses. However, it can feel overwhelming if your business barely generates enough cash flow or falls short in some months.
Getting financing can alleviate the slower months, especially for seasonal companies. However, not everyone can qualify for a loan at a financial institution. If you need quick funding, but conventional methods aren’t working, you need creative ways to get additional capital. This article will explore outside-of-the-box strategies you can use to get more cash for your business.
The Challenge of Funding Your Business
Funding a business isn’t easy. Business owners need to stand out in a sea of competition. You may not compete with the barber shop or home improvement store to get customers, but you may be competing with them to get business funding. Many businesses go to the closest bank to get additional capital. Banks have a lot of money, but they don’t give loans to everyone. They can’t give the same dollar to two companies, so they use credit scores, business revenue, financial obligations, and other factors to assess your application.
Even if you have a good business, you may not get financing from a bank or credit union. Some of their qualifications are stringent, and others may require a few years of business experience before you can apply for a loan.
Luckily, banks and credit unions aren’t the only games in town. You can get capital from an online lender, family and friends, and other groups. You may have to get creative with how you find opportunities. You will have to convince people and organizations that they can trust you with their money. It’s natural for people and lenders to ask questions and request more information before giving you money.
Just because it’s challenging doesn’t mean it’s impossible. For example, the U.S. Small Business Administration (SBA) gave business owners $44.8 billion in the fiscal year 2021 through over 61,000 loans. The SBA is one of many lenders, and while they’re a big name, there are many lenders who have provided business owners with billions of dollars. So it’s possible to get the funding your company needs despite the challenges.
Consider These Things Before You Seek Financing
A little bit of preparation can go a long way in securing enough capital to fund your next project. So here are some things to keep in mind before you reach out to financial institutions, online lenders, partners, or anyone else.
Decide How Much You Need
If you borrow $10,000 and realize you need $50,000, you’ll incur additional administrative fees for the second loan. However, if you borrow $100,000, you’ll pay interest on money that you will never use for your business. That’s also assuming you get the $100,000. Asking for more money increases your monthly loan payments, which makes it more difficult to qualify. Knowing how much you need minimizes the likelihood of either scenario.
Build Your Credit
Your credit report provides a snapshot of your ability to manage debt. A higher credit score demonstrates your ability to juggle more debt, but a low credit score creates the opposite impression. Having no credit doesn’t give the lender much to go on when deciding if you should get a loan. Some lenders let you use personal credit as long as you make a personal guarantee to repay the business loan. Still, you can build business credit with a secured business card, a line of credit, or by doing business with merchants that report your payment activity to the major business credit bureaus.
Create a Business Plan
Lenders want to feel confident that a business owner will repay the debt and use the capital to grow their company. A business plan details how you will use the money and grow your company in the future. The lender can understand your vision and how you intend to deploy the capital. A business plan can also give you more clarity. You’ll have to set milestones and identify the actions you will take to achieve those goals. Even if you don’t need capital, it’s great to have a business plan with a 3-5 year horizon.
Run the Numbers
Getting new capital for your business is exciting, but you’ll need a way to repay it. Businesses can use their cash flow to cover monthly expenses, but some businesses have more room than others. You may not have enough cash to cover $3,000 payments each month. Opting for more years on the back of your loan will minimize payments and can help you borrow more money while staying below $3,000 per month. Figure out how much you can cover each month so you grow sustainably instead of burning out and having to take on more debt just to keep up with existing obligations.
Highlight Your Strengths
A lender or investor doesn’t just support your business. They also support you. People, financial institutions, and organizations will consider your personal qualities, traits, and mindset when reviewing your loan application and deciding how much to provide. Demonstrating confidence may not help if you have a bad credit score and declining revenue numbers that can’t keep up with monthly loan payments. However, it can sway the loan application process in your favor if you barely qualify or want access to more capital.
7 Creative Ways to Fund Your Business
After laying the groundwork, it’s time to find capital for your business. A traditional lender is a great resource, but if you want more creative ways to raise funds that save time, provide lower rates, or both, try these seven alternatives.
Crowdfunding campaigns give businesses the opportunity to promote their project and raise cash from others. Family, friends, customers, and others that know about your business may contribute to your crowdfunding campaign. You can offer tiered incentives that get better based on how much someone contributes.
2. Business Grants
Organizations give out business grants to business owners based on multiple criteria, but if you find a grant that’s right for you, it’s one of the best ways to raise capital. Unlike loans and lines of credit, you don’t have to repay a business grant. It’s free money, but organizations have different requirements for obtaining a grant. Make sure you fulfill those requirements before applying.
3. Business Card Stacking
Business card stacking is an innovative approach to funding your business. This process involves applying for several unsecured business credit cards. Timing these applications correctly can help you access higher credit limits. This requires a bit of research and knowledge of the industry to do on your own.
4. Fintech Funding
Fintech companies provide modernized financial services and make it easier for individuals and business owners to receive funding. These companies use different parameters to assess an applicant’s ability to repay a business loan, and you can typically get financing a lot quicker with this method. You can have your loan proceeds within a week with this method, while financial institutions may take over a month to give you a loan.
5. Peer-to-Peer Lending
P2P lending platforms allow people to request money from small borrowers instead of financial institutions. Peer-to-peer lending sites will request information about your credit score, revenue, goals, and other details to assess the interest rate for peer contributions. You can bypass traditional banks with this type of financing and connect with people who may become customers.
6. Angel Investment
Angel investors are wealthy investors who look for businesses to invest in. These investors provide cash in exchange for a percentage of your business. Giving equity can help your business because you won’t incur additional debt. You don’t have to repay any loans, but angel investors may include exit plans in their contracts that you should keep in mind when planning your finances.
Not only do you get capital, but angel investors also become invested in the business. Some angel investors will introduce you to new connections who can jumpstart your company’s growth. Some connections can be worth more than the money.
7. Pitch Competitions
Pitch competitions can be a creative way to raise capital for your business. They’re like Shark Tank but less intense. You can present your business idea to a panel, and if they like your pitch, you get to advance to the next round. Some pitch competitions have a few rounds before you reach the final round, where you usually get to pitch your business in front of a larger audience. The top placements receive cash prizes, but even if you don’t win, more people will learn about your business through a pitch competition. You can partner with fellow business owners competing for the same prize after the competition ends or get someone’s attention in the stands. You never know who is watching you when you pitch your business in one of these competitions.
Pitch competitions have requirements for entry, and it’s good to narrow your list based on which ones you qualify for. Mastering your business pitch so judges can understand your model, the opportunity, and revenue projections will increase your chances of winning. This practice can help you become a more effective communicator and get investors outside of the pitch competition. You can also refine your business plan through these events.