Finding the start-up fund for your business can be extremely difficult, especially when you have a lack of income or poor credit. There is no need to give up on your dream though, because there are other ways to finance your business!
Loans Based on Industry
Did you know that banks are more inclined to give loans for businesses covering a certain industry? Banks take into account the historic data for your industry and will be more inclined to give you a loan if this industry has done well in the past.
There is a downside to this industry based loan though, because it works the other way round as well. Industries that have done badly in the past can be denied a loan based on that fact. Some examples of these industries are bars, restaurants and contractor companies.
Crowdfunding for Small Businesses
Crowdfunding used to be only for big fishes, but small businesses can now take advantage of this funding type as well. As a business owner, you could take advantage of two basic types of crowdfunding, more specifically donations or private loans.
Donations are usually given by investors, although they may require some shares or ownership of the company in return. The majority of donations are not in return for financial benefits though, since a lot of investors are happy with some recognition.
Private investors are a little more difficult to find and always require some return for their investment. Possible financial benefits for private investors could be ownership stakes or interest payments, depending on the repayment you prefer.
Merchant loans are also a possibility when you are looking for business funding, although they are a bit more complicated than crowdfunding. The merchant loans are basically forms of short-term financing, where the history of a credit card is used to determine a certain premium for the lender.
There is definitely a downside to using merchant loans, since your credit card will be charged until the loan and premium are repaid. If you do decide to use a merchant loan, you will need to determine your profit margin in advance. Will the merchant loan help you or put you in further debt? The merchant loan system may be a good solution when you are having some cash flow problems, but you have a big contract ahead that will give you plenty of profit.
Factoring is an alternative to the merchant loan and also provides business with a short-term cash flow solution. This system can also be seen as a suitable alternative to credit card loans, but can only be used for a short period of time.
The factoring system works as follows: invoices will be bought for a direct payment and the specific lender will determine how much they pay for the invoice. It basically means that your lender could buy one of your invoice for a lesser amount, giving you less money for a job you executed or a product you sold. The collection of the invoice then becomes the responsibility of the factoring company and you will no longer be entitled to receive money from that particular invoice. Lenders who operate this system will choose low-risk invoices and probably cash 20% of the profit.