Four Alternative Business Financing Options

Guest post by Sara Mackey

Kindness

In today's tough economy, it can be difficult for a business to obtain the financing they need for start up costs or for expanding their current business. Alternative business financing options can provide the business the funds they need in non-traditional ways. Here are four alternative business financing options that can turn the “no” from a bank into cash for your business.

Angel Investors

Angel investors are typically private affluent entrepreneurs who use their personal funds to invest in businesses. They provide the necessary financing in exchange for equity ownership. In general, angel investors invest in industries they are familiar with and have either worked in or invested in previously. They bring a valuable voice of experience and an already established network that can give your business an edge against your bank-funded competition. According to recent statistics, approximately 2/3 of new business funding is obtained through angel investors.

Venture Capitalists

Venture capitalists are similar to angel investors, but rather than investing their own money, they invest from a pool of funds from their clients. Typically, venture capitalists fund large projects that require substantial financing. They also tend to stick with high-risk/high-reward opportunities. They provide financing in exchange for stocks or shares of your business and once your business reaches a certain size and market value, they liquidate their stocks. Venture capitalist funding is not a loan that needs to be repaid rather they receive their cash when your business goes public or when it is acquired by another company.

Crowd Sourcing

The term crowd sourcing has been around since 2006, but the concept has only recently started to grow in popularity. One way to improve your chances of obtaining the business capital you need is through peer to peer (P2P) lending or crowd sourcing. P2P lending is financing you receive from the average person in small increments until you have the total amount needed. There are websites dedicated to hooking up potential business owners with potential lenders. Crowd sourcing works in similar ways and allows you to obtain the funding you need from multiple sources in exchange for an offered benefit from you to the lender. It can be shares in the company, free products or services or some other mutually agreeable perk. There are many crowd sourcing sites available online.

Bootstrapping

Bootstrapping refers to a business that starts up with no external help. It is solely financed by their own personal funds and if done correctly, can allow you to retain sole ownership of your business, provide more freedom and flexibility and make your business more appealing for future investors. Bootstrapping your business also forces you to focus solely on pleasing your customer rather than worrying about your angel or venture capitalist investor's demands. When a business is financed and depends on personal funds and cash flow generated by the business, there is a more concentrated effort to succeed. It is more difficult to lose your own funds rather than the funds from strangers you have never met.

Sara Mackey works for Connexx.com, an authoritative guide in the field of small business finance. She has worked in small business financing for nearly a decade.