Conventional funding isn’t easily accessible to many small businesses or new ventures. This makes founders and business owners look out for alternative ways to fund, or even start a business without loans. Luckily there exist some options where a loan can be avoided, and thus there is no requirement to repay in a fixed duration.
Loan approval processes aren’t meant for everyone. But there are several other ways to raise money for operations, growth or other needs without having to borrow. The best known is invoice factoring, where the invoices are sold to the lender in lieu of money. This way, the current sales process goes on to fund the business.
An interest concept is that of trade credit, where a supplier allows buyers to receive goods and services, but pay later within stipulated period. Trade credit also comes with discounts when the invoices are cleared earlier than the last date.
A novel way to get money is to pre-sell goods and services. These offers are promoted with discounts and special deals, and the funds generated can then go towards setting up the actual production. A more conventional way is to use the over-draft facility extended by banks. Those with property can rent out portions of their premises to raise capital. The amount so generated can add to the fund pool.
Small businesses can try out seeking angel investors or seed funders and sell a stake in their business. This is the preferred route for start-ups with disruptive ideas. Venture capital however is a very different route compared to taking out loans, as it involves losing control over the business.
A micro-loan avenue that works without the repayment obligation is crowdfunding. Small amounts can be collected from the public as donations in return for goodies and discounts on the actual product. These campaigns are ideal for new ideas and businesses with social causes. Finally, peer-to-peer funding platforms are a popular way to get hold of capital.
On the other hand, a business may also need loans to meet its obligations, clear debt, or expand. They may also need to borrow to upgrade and buy new equipment. The latter is explained in detail in the guide, how to get equipment loans.