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22 Jun
2017

Raul Harman

Innovative enterprise consultant
 

Finding finance can be very difficult for a small eCommerce business. Regardless of the quality of your idea, there’s a lot of competition out there and financiers are reluctant to borrow money to small businesses.

Luckily there are alternatives to going to the bank and asking for a loan. These types of funding have their advantages. They are usually much faster and require less paperwork. On the other hand, they are not suited for all kinds of businesses so you should think hard before deciding on one.

Personal savings

Sometimes a business doesn’t need that much money to get off the ground. If you have a base of customers waiting for you and you know that you can make a profit pretty fast, you might just tap into your personal savings. This only works for those businesses that have a fast return on investment and are able to launch right away. The drawbacks of this choice are obvious as well. There’s never a guarantee that a business won’t fail and if it does – it’s your savings that are on the line.

Venture capitalists

Venture capitalists are investors with very deep pockets that only finance businesses that have a chance of becoming the next big thing. They are also very business savvy and know what it takes to transform a startup into a large international company. These investments could really put you on the map because they are about more than just money – the connections and the expertise of the investor can be of even bigger importance. Have in mind that they are not easy to come by because they will check every aspect of your business plan before they give you any money.

Crowdfunding

Crowdfunding is a relatively new way of doing things, but it has already funded a couple of huge businesses and commercial projects. Individuals pledge money to your company or project before it’s created, based on the description and teasers you’ve created. This is a good choice for a drop shipping website because it responds to the needs of ordinary users. With crowdfunding, your marketing skills are of great importance because there’s still no product you can rally on. Those who donate early on should be eligible for perks.

SBA loans

SBA loans technically come from banks but they are guaranteed by the government. The government helps small businesses that meet the required standards to get the funding they need early on and get a head start. It only applies to certain industries and types of businesses. Getting this loan isn’t an easy task because the government has a lot of hoops for you to jump through. The paperwork itself could take months and require you to hire an additional person to help you deal with it. However, if you’re not otherwise eligible for a bank loan this could be of great help.

Peer to peer lending

Peer to peer lending refers to the practice of individuals lending money to businesses without any help from traditional financial institutions. Sometimes it’s known as social lending as well. The lender doesn’t have as much insurance that your business will succeed because there are no background checks or detailed business plans as is the case with banks. On the other hand, interest rates are much bigger than they would be with banks or SBA loans. This could be a great option for a business that needs a short-term help to get through a difficult patch.

There are numerous options for small business finance other than traditional banks. All of them could be of great help to a small business, but there are also certain drawbacks involved, so choose carefully.


 

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