Alternative finance is becoming increasingly popular with the development of innovative crowd funding platforms as well as the wealth of entrepreneurs developing new ways to help finance startup businesses. These new platforms have been a response to banks declining business loans or credit card borrowing to over a quarter of small to medium sized businesses. Some businesses have no other option but to create or search for alternative finance options to grow. So, for businesses in that position, here are three innovative ways every entrepreneur or SME needs to consider:
This modern way of financing your startup is likely one you are most familiar with due to the sparkling success stories from businesses that have started as one man bands to owners of large, profitable businesses as a result of the initial boost that can come from crowdfunding.
Crowdfunding works by asking the general public to invest in your business in return for either a share in your business or other incentives. Businesses can set a limited time frame to raise funds and also a target number for the funds raised. When marketed well, many find great success from this new way of financing; not only do they gain the money they need but they also gain a loyal and emotionally and financially invested audience to follow them on their journey.
Angel investment is similar to Crowdfunding in the way that it is members of the public investing in a company. However, these individuals are investors who are often very wealthy entrepreneurs themselves actively seeking promising SMEs and entrepreneurs to invest in. They will usually negotiate the return from their investment – so be prepared with a fierce negotiation strategy!
There is another huge benefit to sealing the deal with an Angel Investor and that is their experience. Due to the risk, they usually invest in businesses they are passionate about that can benefit from the investor’s experience. So they will not only want to invest their money but also their time and advice. Let them be your mentor if they offer, take on board their comments and share in success.
Although business grants are not exactly a new idea, they are definitely worth considering – money that you don’t have to pay back is always worth a thought! There is a catch though, these grants are quite tricky to get your hands on: there is often mountains of paperwork to specify exactly why you need the money, what you’re going to spend it on and why they should give the grant to you rather than another businesses. It’s hard work but worth it. You may even need to pitch for the grant and going up against other businesses can be an arduous task, so perfecting your pitch is essential.
Once secured though a business grant is a pot of cash that’s all yours, you don’t need to give it back or even give away shares in return. There is also the added bonus of the PR that will most likely come from the organisation that gave you the grant. They will want to share with the world the great work they’re doing and in doing so they will be giving your company exposure that can be highly advantageous.
Getting your startup off the ground can be a hard slog that can be eased with the boost of investment from alternative funding sources. These are just a few options entrepreneurs and SMEs can consider when looking for a finance solution and are great alternatives to the bank.