By Cristina Beltran
Are you looking into starting a new business or experiencing a cash-flow squeeze but don’t know where to source your funds? Or perhaps you need some tips on how to improve your cash flow and get some instant cash. Some entrepreneurs have the ability to self-fund, but don’t despair if you’re not one of them. There are also a lot of other options that will give your businesses the needed financial boost. Here are some common and creative ways to get your business funded:
Even though factoring is one of the oldest ways to get financing for your business, some companies still like it because you get your money quickly (within 24-48 hours). This method is often used by companies who have slow-paying customers. You sell your invoices or accounts receivable to “factors” or specialized companies. If the billed customer proves to be credit-worthy, the factor gives you the invoice amount (around 70-90 percent). After you’re paid, the factor remits the balance and subtracts the factoring or transaction fee. The service can be quite costly, but it’s sometimes a more preferred method to get financing compared to loaning from banks that require a lot of paperwork and other investors.
Peer to peer lending (P2P)
Also known as person-to-person lending or social lending, this method lets you loan from people you don’t know through online sites. Borrowers and lenders are matched commonly via online auctions. Loans may come from many different lenders or lenders may pick a particular borrower. You should be able to sell your “story” on these sites to get the funding you need. Lenders generate income through interest. However, it may not be that easy to get a P2P loan and the interest charged by these platforms may be higher than traditional loans in order to compensate for the risk lenders are taking. Lending Club and Prosper.com are the two most popular P2P sites you can look into.
Another online initiative, crowdfunding gives netizens the opportunity to invest in your business idea and make it a reality. Register on crowdfunding sites like Kickstarter and IndieGoGo, sell your story, determine your target amount, and wait for people to invest in it. To further motivate potential donors to invest in your business idea, you can promise them rewards such as product samples if your business gets complete funding. Only those who get complete funding will get paid, but the best part is, you won’t have to repay your donors for their investment.
Microfinance is a sustainable form of financing for unemployed or low-income individuals. Microfinancing institutions offer small loans with an interest lower than than those charged by banks. Good Return and Opportunity International are examples of some microfinancing institutions. If you have a great business idea and need a small capital, then you can consider this option.
Business incubators are organizations that provide great opportunities for financing and mentoring startups and other early-stage companies. They even offer physical spaces for your office at a monthly or daily fee. Example of a business incubator is ATP Innovations.
Contests and competitions
Another great way to get money is to win it. You can join national or local competitions that not only gives you prize money for your business plan, but also offers great opportunities for learning and networking. Schools like RMIT University hold annual business plan competitions to help turn your entrepreneurial dreams into reality.
There are a lot of other financing opportunities for entrepreneurs like you, but those mentioned above are already practical and creative options to source your funds. Remember that once you get your startup capital, you’d also have to read on some tips on how to improve your cash flow, so you’ll put your investors’ money to good use.