No matter which stages your business is in, it needs capital to survive. It may need capital to launch, grow, or just to operate. Your capital can be in the form of personal savings, bank loans, retirement accounts, credit cards, or funds from your family and friends. However, not all businesses are launched with this kind of outside investment. For many businesses, getting funding sources from banks, investors, and lines of credits is not possible. Fortunately, new funding options are now available to respond to the needs of businesses and individuals. Below are of the funding options available for them:
Peer-to-Peer (P2P) Lending
This new funding model is getting more and more popular among businesses owners. In this model, financing is funded by investors instead of a direct lender. Peer-to-peer lenders underwrite borrowers; however, do not fun the loans directly.
This has become a viable function option for business people who are starting a new business. Crowdfunding works by giving an idea that people would want to support with small-dollar contributions. Business owners that get plenty of people to buy in will raise lots of money. This function option requires the right type of product or exciting project for a campaign to be launched through a crowdfunding platform.
Microfinance offers capital to start a business. It is a loan given to borrowers without collateral. But, interest rates for this funding option are usually very high.
Some firms are now offering expansion capital through flexible business loans paid back based on a part of monthly revenue. This kind of funding suits existing firms, mainly those that have recurring monthly revenue.
Cities and states are increasingly providing startup or growth funding to attract new business or retain companies that wish to expand. A government agency offers zero or low-interest loans, venture capital, or business grants.
A number of venture capital firms are upending conventional financing models by offering venture financing. Venture capital is offered by firms for funding small, emerging firms that have high growth potential. Usually, venture capital investments are for the long term. Venture capital firms expect returns on their investment of at least 25%, given the risk profile of the companies they invest in. Investors get capital by pooling money from insurance companies, pension funds, and wealthy investors. They decide which businesses to invest in and get management fees and a percentage of the profits.