Saturday, August 13, 2011

Funding Your Dreams: Seeking Out Alternative Financing For Your Business

Money, Money, Money

Do you have the perfect business idea? Are you passionate about your product or service? Are you so sure that you can be successful but you don’t have the funds to get started? There is hope.

Before you even think about approaching a bank or alternative source of funding you must have a solid business plan. You need to show potential investors that you not only have a great idea and the passion to bring it to life, but also a well thought out plan of how you will make it happen and that it will be profitable.

Once you have your business plan you need to carefully research all the available sources for potential financing. Banks are usually the first source business owners approach. Understandably, many times they are turned down. All is not lost. There are many other sources of alternative financing out there, you just have to know where to look.

First, let me say, venture capital (VC) is probably not an option for most us. Venture capital firms focuses primarily on big investments in big companies that are high risk, high yield start up companies in the fields of technology, healthcare and more recently green technology. Occasionally, firms have financed smaller companies, and are now openly doing so as Venture Lending for Start Up Capital. Firms are particularly interested in small businesses that could potentially explode in to big businesses.  Where VC focuses on big loans with big returns, venture lending for start up capital are often smaller loans where the firm may not require an ongoing piece of the business.

Bootstrap Financing, or self-funding is a common way many small business receive at least partial financing. This can include borrowing from friends and family and bartering products and services. The main advantage to this is that it can eliminate high interest but could also present problems if the financing cannot be paid back in a timely manner. Relying on this type of financing can also limit the company’s growth. First and foremost, never accept a loan from friends or family without drawing up a clear contract. Handle it as you would a bank loan.

Community Banks are another great alternative to the standard bank loan. They often have money to lend particularly to local, community driven businesses that might help build the local community and economy. Some community banks are certified lenders through the U. S. Small Business Administration. Instead of your business being analyzed by a computer, as is done why most of the big banks, community banks give businesses the opportunity to actually present their business plan to see if it might be a good fit.

Angel Investors can be a good resource for many businesses. Most angel investors are wealth individuals, or networks of individuals looking primarily to invest in new businesses, usually seeking lower amounts than those seeking venture capital. Similar to venture capitalists, angel investors are usually looking to own a healthy portion of your business as a result of their investment.

Credit Cards are often used by small businesses needing small loans quickly.  With high interest rates, this type of funding should only be considered in emergency situations.

Here are some other types of alternative financing you might want to consider:

Last but not least, there are grants available to small businesses. Especially if you or your business has or creates some relational ties to organizations offering the grants.  They may be difficult to find but they are out there. Do your research. In fact, you might want to try searching for grants first. After all, they are valuable assets that don’t have to be paid back.

Here are some additional links you will find useful in your search for funding:

U.S. Small Business Administration:

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