Beyond Banks: 7 Alternative Financing Options to Fuel Your Small Business

Whether you have a fledgling business or a growing operation, you need financing from time to time in order to expand your outreach, introduce new solutions, or fulfill other plans. While taking a loan from the bank is often the way to secure business financing, it comes with its own issues like high interest rates.

But there’s good news: Banks are not your only option when it comes to getting funding for your business. You can also turn to various alternatives to get the financing you need. To help you learn more, here are 7 alternative options to fuel your small business.  

1. Credit Union

If you want to master commercial loan financing, you may want to turn to credit unions. Credit unions are community-centered financial institutions that serve their local areas with almost the same financing products as banks, but at a more personalized level. Even though credit unions offer more favorable interest rates, they falter in terms of enterprise-level business solutions. But for most small businesses, this shortcoming does not make a difference and does not get treated as a massive problem. 

2. Angel Investors

While credit unions may check your credit score to approve loans, angel investors might not give that much weight to it. These are high-net-worth individuals who invest in businesses at an early stage in exchange for a share or equity in the company. They can also offer guidance and contacts to the businesses they invest in. Going with angel investors gives you the advantage of retaining control over your business even with outside financing.  

3. Venture Capital

You don’t need to use a cryptocurrency wallet to learn about venture capital firms. Venture capital firms are established institutions that offer larger financing amounts than angel investors, typically to businesses that are looking for funding in their starting stages. But unlike angel investors who do not want to retain control of the company, venture capital firms proceed to have a say in most of your decisions. This means that you need to choose this route after careful consideration. 

4. P2P Loans

Peer-to-peer (P2P) lending directly connects borrowers to individual lenders through online platforms. Contracts are established between the lender and borrower, with pre-agreed interest rates and payment terms to boot. With some loan platforms, you can also shop around for interest rates and other terms to see which offers best suit your expectations as well as your go-to tips for financial management. With that being said, most P2P loans come with lower financing amounts. 

5. Crowdfunding

In case you want higher financing without involving a traditional institution, you can also consider taking your business to crowdfunding. Here, your options range from a crowdfunding platform that is all about launching ideas off the ground or a solution that showcases what your existing business is trying to achieve. This could appeal to donors from all around the world and help you gather the funding that you need while maintaining control over your business. 

6. Invoice Factoring

If you are in need of urgent funding that you cannot get from different types of business loans, you can consider invoice factoring. This is a method where you sell your unpaid invoices to third-party vendors, and receive a portion of the unsettled invoice amount. You get the financing that you need, while the amount from your invoices goes to the third-party when they are paid in full by your clients.

7. Private Equity

Even when you use solutions like transaction management software, you can still struggle to make ends meet. With private equity firms that usually buy equity in companies and prefer to maintain ownership stakes, you can save your business from being shelved. But here’s the catch: While your business gets the money that it needs, you often need to give up some portion of control to the private equity firm. This makes it a riskier option if you fear being ousted from your own organization. 

Through these options, you can discover an alternative financing platform for your business. While it might take some effort for you to find the right lender or investor, you can achieve that feat by understanding your needs and doing your research.