As an entrepreneur or aspiring small business owner, you know that financing can often be one of your biggest challenges. If you’ve explored grants and traditional loans but find that these options don’t meet your needs, there’s still hope. Below are two other approaches to help you finance your small business endeavors.
You’ve probably heard this term before. It’s an increasingly popular way for all people – from independent movie directors to small business professionals like you – to raise funds. So how does it work?
With crowdfunding, an entrepreneur can attract a crowd of people, each of whom takes a small stake in a business idea, by contributing online toward a funding goal. In exchange for contributing to your business venture, you “reward” investors with something special. This can be a product or perk, such as a share in your business or exclusive access to events. Whatever you think may be of interest for folks contributing to your success can be offered.
TIP: Make sure to estimate costs precisely. If you meet your fundraising goal but it turns out you need more money than you originally thought, your business risks getting sued if you fail to deliver on promises in return for investments.
Peer-to-peer-lending (P2P) is similar to crowdfunding in that you share your business idea in the hope that people will help make it become reality. Popular sites like Prosper and Lending Club connect people who want to lend money with those who need to borrow money, often in amounts as low as $25. The website acts as an online “middle man,” helping make sure you get your funds and your lenders get their payment amounts.
It’s up to you to establish the purpose of your loan request, how much you need to borrow and then post your listing online. Potential lenders explore site listings, checking out the purpose of loans and associated interest rates. As with crowdfunding, more than one person may join in funding your loan.
TIP: Your credit history matters. Usually, you’re not required to provide collateral for P2P loans, so your credit history is taken into consideration to determine if you qualify. So if you’ve had previous financial troubles, you may want to improve your credit history before applying to P2P sites.
Making your small business dream a reality can be tough, but exploring these and other ways of financing can help you find success.
Online Lending Photo via Shutterstock