Although small business loans are the best option to finance your business and invest in it, there are other alternatives to finance a business without having to request a loan. Whatever the reason why you do not want to resort to small business loans, exploring your options will allow you to expand your panorama and evaluate what could be the best alternative for your business and your needs.
Family and Friends
This is one of the most used options by new entrepreneurs since they have the support of friends and family. For this reason, it is so common to see family businesses since they tend to be born this way. The main advantage of this option is that you probably do not have to pay any interest rate, although it all depends on the agreement you reach with your family.
However, this can also work against your business. Family businesses can be complicated because they are often verbal and not legal agreements. Even if you do not agree to establish a business with the family member who lends you the money, it is likely that this family member still will feel some claim on your business.
The second alternative that facilitates the financing of small businesses is the participation of partners in the business. For small businesses, the most common is to convert friends or acquaintances as partners. In this financing model, the partner will contribute with a percentage of the capital necessary to start the business without money, and later that same percentage in relation to the profits obtained.
The positive aspect of this type of financing is the cooperation and participation not only of capital but also of the partner’s talent. However, it is advisable to write a clear and valid contract of the commitments that this type of association will generate for legal purposes.
A common source of financing is the entrepreneur’s savings. A recommendation before using this money is to determine if these savings can truly be used to invest in the business. That is, they are not essential or crucial to your life in general (such as for medical emergencies).
If the true purpose of these savings is to pay down monthly debt or your cost of living, you really shouldn’t use this money to start your business. Using savings involves investing the money you don’t need, such as investment capital in a project.
If you are a university student who wants to start a business or simply a small entrepreneur, there are many fintech companies whose services are specifically directed at you. However, you also could obtain financing to start a business through “Business Angels.” These are generally found financing business incubator projects. Incubators are well-developed projects (generally in Universities) to create a business plan that is feasible and profitable.
Once the project is completed, it can be presented to investors who are willing to put the money in. For the entrepreneur to attract the attention of investors, they must have a very well-defined project. However, despite the quality of your project, the competition for this type of financing can be very fierce.
In any of these forms of financing, the main recommendation before looking for them is to develop a business plan that determines the feasibility of the project and the mode of financing. It is also good to reconsider the possibility of opting for small business financing since it could be a much faster and feasible option.