How to Fund a Small Business without a Bank Loan
Most business ideas aren’t fulfilled because of the lack of funding. A bank loan is hard to get and even when you do get one it means a long term relationship with the bank and sometimes debt that go on longer than the business itself.
There are ways, however, to fund a business without using a bank loan. This may be more difficult at least at first but it also allows you to have more freedom in your finances and business practices overall.
Don’t start at full capacity
It’s perfectly fine, even preferable to have great ambitions about your business, but it might be wrong to start fulfilling them all at once. This will put your young business under financial pressure and require you to borrow. Starting at lower capacity allows you to test your systems before you go in too deep.
It’s best not to do this by adding more services and more products as time goes by. Instead you should offer the full range of your services but to a smaller number of customers or at part time capacity.
Personal funds
Before going into a long term loan, you should consider your own funds and financial capabilities. If you have assets or personal savings you should deep into those before borrowing any many. This is obviously a more risky move for the owner since you’re putting personal assets on the line, however it pays of in terms of freedom that it gives you.
It’s also important to take into account how your company is set up in terms of its structure. You’ll need to check with your account is it possible to mix the personal assets of the owner and the company itself, since if the company is set up as an LLC that may not always be possible.
Partnering up
Another way to go is to have a partner that will help your business financially. These partnerships are usually arranged by one partner providing the infrastructure and labor needed to run the company, while the other is helping with the finance. There are also other arrangements in which all the tasks are divided equally and these need to be worked through.
Have in mind that if your problem with using a bank to get a long term loan is the fact that you get your business tangled up with someone else, you’ll also have this problem with having a partner.
Reinvesting profits
If your business is creating a profit on a steady basis you should consider it as a source of investment as well. This means that all or most of the money that you earn goes towards expanding the business and offering more services.
This is the most self-sustainable way to run a business, but it’s not something that’s possible for small companies that are just getting started in the business. It will also require you to be disciplined with your finances.
Crowdfunding
Crowdfunding means that you get the funds for your business from the customers and clients directly. This is done by the customers and clients pledging their funds to your company before an actual product is provided. There are platforms out there that are used to connect the businesses and their potential backers for a small fee.
This isn’t an option that’s available to anyone because it can only be done by the businesses that already have a large customer base or are able to present their potential products in a way that can be attractive to potential customer base.
Peer to peer lending
Peer to peer lending is a form of borrowing money but it’s different than going to the bank for a variety of reasons. Firstly, it’s used to borrow much smaller amounts of money. Secondly, the process for being approved for a loan is much easier and therefore faster.
The downside to this approach to borrowing is the rates. The rates are much higher than they are when you’re borrowing from a bank. It’s up to you to balance the two and figure out is this something that will help your business in the short term when you need it the most.
Conclusion
There are ways to fund a small business without having to take out a bank loan. That’s because many small business owner prefer to be independent and to use only the funds that they actually have at their disposal. All of the alternatives also have their downsides.
These are ranging from going into small scale peer to peer lending to using only your funds. It’s also possible to go into long term partnerships but this also limits the freedom of a small business to act as its owner wants to.
