In a recent study conducted by Pepperdine University in partnership with Dun & Bradstreet Credibility Corp, we learned that 44% of small and mid-sized business owners indicated that they thought increased access to capital would be the best way to, “spur U.S. job creation,” in 2012 [.pdf].
The most obvious source of business funding is the banking system. However, for many small business owners, the banks haven’t been stepping up to the plate which has forced business owners to search for alternative forms of financing.
Here are some of the most popular alternative forms and how you, as a business owner, can get the money you need to grow your business.
Crowdfunding is the idea of using anyone you know to help fund your business through small investments. Often times these small investments will come with some perk, whether it is a piece of merchandise or some ownership in the company. One of the more prominent crowdfunding websites out there right now is Kickstarter.
- Check out this article for more information on crowdfunding
Microfinancing (or sometimes microloans) are small loans for small businesses. The maximum amount for a loan obtained through microfinancing is typically $50,000 while the average loan is between $10,000-$15,000. These loans can help provide the working capital your business needs to succeed without some of the difficulty of obtaining a larger loan.
Angel investors can provide an alternative to banks. These types of investors are more willing to take risks with the businesses they fund while also providing longer loans.
As Steve Strauss mentioned during CredibilityLIVE business incubators are an excellent resource for capital, though it is provided through somewhat indirect means. Business incubator are public/private entities that come together to rent space for discounted rent and legal services among other things. Business incubators provide an opportunity for networking while also having a vested interest in the success of your business.
- Steve explained more about business incubators during his CredibilityLIVE event
Venture capital shares some ideas in common with angel investments. However, this type of capital is mostly available to newer businesses with high risk and high reward. For businesses unable to secure a loan from a bank that meet these criteria, venture capital is an option.
- Learn more about venture capital from the Encyclopedia of Private Equity.
This type of funding occurs when a loan is made from one person to another without going through a bank. There are several varieties of peer to peer funding including, direct or indirect funding, and secured or unsecured funding. This method is similar to venture capital and angel investing.
- This article on MSNBC demonstrates how peer to peer funding works.
A great resource for learning about getting access to capital and funding for your business is our CredibilityLIVE event with Steve Strauss. It’s a long talk (1 full hour), but worth it as Steve covered many of these topics in more detail as well as other ways to get the capital your business needs. You can also check out our Credit Resources for ways to raise capital, ranging from asset factoring to equity financing, as well as how small business owners can raise capital in a crunch.