Last Updated on February 13, 2024 by Nasir Hanif
A bank loan or line of credit is commonly the first option that business owners consider – and for businesses that qualify, this may be the best option.
In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be increasingly difficult. Your bank may have tightened up its credit requirements, or you may be dealing with the recent economic downturn.
Yet while securing a bank loan can be a complex, time-consuming process, there are alternative financing and venture capital options that may provide the working capital your business needs. All about bank loans can be found here: Søk Forbrukslån Nå
The cost of venture capital and angel investors fluctuates. It’s generally more expensive to secure funding from a venture capitalist than from an angel, but more venture capitalists than angels are also.
Small business owners often seek venture capital or angel investment for the same reasons larger companies do.
For starters, venture capitalists and angel investors can help bring needed capital to your business, giving you a “jump-start” on growth.
Venture capitalists and angel investors can also help companies gain access to strategic resources, such as market trends, sales channels, distribution channels, customer demographics and competition.
At the same time, venture capitalists and angel investors expect to be paid back in some way.
In return for financing, venture capitalists and angel investors typically expect a percentage of the company’s profits and a seat on the company’s board of directors.
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So, what’s the downside?
First, bringing more investors into a business comes with more paperwork, more demands on your time and more liability. Second, venture capitalists and angel investors often don’t have the same goals as business owners.
Some investors want control of the company rather than a stake in it. Still, others want the company’s assets, such as intellectual property, instead of just a share in the profits. So, when seeking venture capital or angel funding, business owners need to consider whether they’re getting a good deal.
Some venture capital and angel investors may be willing to sign less onerous contracts. Still, business owners need to figure out exactly how much control their investors want before they’re willing to sign. A consultant or accountant can help business owners evaluate how venture capital and angel investors might affect them.
Alternative financing solutions
Traditional bank loans have been the most common source of business financing for decades, but today business owners can choose from various alternative sources of capital. If your business needs working capital, but you don’t qualify for a bank loan or line of credit, you may think there’s no hope. But things may not be as bad as they seem. Four of the most common types of alternative financing used by such businesses are:
Business Lines of Credit –
These are ideal for short-term financing and can quickly bridge gaps between inventory purchases or receivables and when cash is available. A business line of credit is flexible, easy to draw from, and does not require collateral. A simple line of credit is for working capital, while a more complex line of credit might include several different loans for different business categories.
Pre-IPO Financing –
These are an alternative to venture capital financing. Pre-IPO financing is often used by private startups that seek capital to finance their growth before listing on public stock exchanges.
Refinanced Loans –
Refinanced loans are similar to bank loans and can be applied to working capital, capital expenditures, or buying new equipment.
Full-service factoring–
A factor provides cash advances based on the value of invoices that companies send to the factor. Customers then pay the factor, not the business. The factor then advances a portion of the face value of the invoices. Businesses using factoring are typically small or mid-sized companies that need access to cash quickly.
Final Thoughts
We’ve spoken with dozens of entrepreneurs who have turned to alternative financing to secure the capital they need to grow their businesses. While not every option is suitable for every business, you owe it to yourself and your company to understand your options thoroughly before making a decision. Alternative financing can help your business grow without diluting your ownership. After all, it’s your business; shouldn’t you be able to keep as much of it as possible?
