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There will come a time when even the most profitable businesses will need financing. This could be to complete an acquisition, expand or introduce new product lines.
Still, traditional financial institutions can be very protective and your business may need to look at other methods. In this article, we discuss three viable alternative financing methods for your business.
Crowdfunding
Crowdfunding has been around for a while, in one form or another. It involves collecting small donations from a large group of people, which are then used to finance a business venture. In return, the people who invested usually get something back in the form of a product or service. While it is a way for artists and creators to generate income, it has recently become widely accepted in the business world.
The concept came into its own after the 2008 financial crisis and is a truly digital medium. By spreading the word on social media and the internet, you can leverage a global interest in products. It’s very similar to buying stock in a company, except buyers can get something other than profits, such as a finished product.
Online racehorse syndicates are excellent examples of companies that have switched to this model. Once a domain of the wealthy, racehorse stocks are now accessible from a series of price entry points. Digital infrastructure means owners don’t have to be in Britain, but can come from anywhere in the world. They buy the horse, similar to a crowdfunding model, and then share the profit made.
Invoice factoring
Invoice factoring is a way to improve cash flow and create stability by selling your outstanding invoices to a third party. When you invoice for goods or services, the unpaid goods or services can cause a backlog. A company will give you the majority of the outstanding amount when it buys them from you, usually around 80% to 90%. The company will then pay you the rest of the amount and request their reimbursement once payment is received in full.
It’s just a good way to make money if you have many outstanding invoices. If this hinders your cash flow, you’ll avoid having to chase them all up. It is useful for a short-term bridge if you want to have your bills paid and it is much cheaper than a loan. However, it does have disadvantages, especially if the customers don’t pay and you lose money. Many of them may also not be happy about you selling invoices to a third party.
Equipment financing
Equipment financing is a good choice if you want a loan to buy machines or equipment. You then pay it in monthly installments, just like with a traditional financing agreement. The equipment is used as security, so if you don’t pay, they will take it back. It is used by many businesses that need large items, such as construction and agriculture, but can also be used by other types of businesses.
These are all quite different methods, but one should be right for your business. They often have better interest rates than bank loans, which can have high interest if you have previously been denied access to them. Check your finances, see how much you need and what is the best option for your business.