Funding for your business no longer comes in the form of a bank loan. In fact, tech lenders such as Paypal have now become contenders in business financing, providing funding of more than $1 billion in 2017.
For most entrepreneurs, a common thing to do when starting a business initiative is to decide on how it will be funded. With the recent explosion in technology, more entrepreneurs are opting to open their small business online or subsequently extend to online sales.
With the shift to online shopping and digital entrepreneurship, so have the financing options adapted.
While the traditional brick and mortar lending institutions still exist, business owners now have a variety of alternative and more innovative financing options available to them.
Peer to peer platforms and crowdfunding have the advantage of being much more flexible in their acceptance criteria compared to banks or traditional lenders.
Thanks to the ease of use and added perks over other lenders, P2P lending has seen a growth of over 110% since 2006. With peer to peer lending, business owners can utilize the loan platform to connect with listed lenders online.
The application process takes a few minutes, and the site also runs a credit check and any legalities needed to satisfy the investor’s preset criteria and risk profile. It also opens up the credit market for small business owners; online entrepreneurs now have access to a global database.
For those considering this option, they should keep in mind that risks such as cybersecurity breaches and technological risks remain relevant since transactions are conducted solely online.
Consumer credit items such as personal credit cards are not necessarily new to financing. In fact, they have been around and relied upon for many decades. This is reflected in the sizeable consumer credit debt Americans are currently carrying.
However, a more recent addition to the consumer credit offering is business credit cards. Many lenders offer a promotional introductory interest rate, such as no interest charged on purchases for 12 months. This is regarded as a more straightforward option since the main requirement for securing your business credit card is a favorable credit score.
Some cards can also offer free business-related benefits such as discounts on motor insurance, which comes in handy for business vehicles. However, they do come with a higher cost of financing; some cards can charge as much as 24 percent APR.
Funded by individuals with a high net worth, angel groups come with their own preset investment approach, including acceptable risks. In addition to the capital influx they bring, these individuals also come with past experience of investing in start-ups or small businesses.
This can be particularly useful for an online business looking to gain a competitive edge in the market.
However, these investors also tend to have their own ideas about how your business can be improved. Therefore, you should be prepared to have an open mind and be flexible with your business plans if choosing this route.
Cashing In Your Roth IRA
This is particularly suited for older entrepreneurs, aged 59½ or older. This is because cashing in your Roth contributions before this age is subject to a 10% penalty fee.
On a positive note, this source of finance comes with no obligations to a lender, since you are accessing money being saved for your retirement needs. On the other hand, cashing in will decrease your retirement portfolio, and so requires careful consideration.
If you’re leaning towards being a bit more creative, joint ventures and seller financing can also be used in the form of amortized loans.
These provide a quicker alternative to borrowing from financial institutions and often come with a more flexible credit history criteria. Regardless of which financial option you choose, you can be certain that you will be able to find the right fit for your business.