In the ever-changing world of entrepreneurship, small business owners often find themselves struggling to secure the necessary money needed to sustain or grow their business ventures. This is where creative funding comes in.
While traditional loans can be a valuable resource, the high-interest rates and strict eligibility criteria can deter many entrepreneurs. However, several creative funding ideas can provide a lifeline to small businesses without the burden of those high loan rates.
The percentage of applicants receiving all the funding they sought fell from 51% in 2019 to 31% in 2021.
—Fed Small Business
1. Crowdfunding
Crowdfunding has revolutionized the way entrepreneurs access capital. Platforms like Kickstarter, Indiegogo and GoFundMe allow small businesses to present their ideas to everyday people (as opposed to traditional lenders) in exchange for a bit of dough.
And whether it’s $5 or $5,000, there’s no number too small when it goes toward expanding your dream. In return for their financial support, backers often receive products, services or exclusive perks depending on the type of crowdfunding.
The four primary forms of crowdfunding are:
- Donation. You’re asking people to give money to your idea but there is no expectation to repay or offer anything in return to the donor.
- Debt. You’re getting the money from contributors with a promise to repay in the future. These crowdfunding campaigns need an outline of the repayment timeline and an offer of interest.
- Reward. Funders shell out money and your business will offer something in return. It can be as small as a token gift like branded stickers or as large as a discounted service.
- Equity. With this route, you sell a share of ownership in the business in exchange for money. Be mindful that this means investors will want a say in how the business is run.
But crowdfunding is not just about raising funds. Consider it one of your marketing tools, ready to generate buzz and attract potential customers.
To succeed with crowdfunding, you’ll want:
- A compelling story: How did you get here? What shaped this dream of business ownership?
- A clear value proposition: What unique service or offering are you bringing to the industry that isn’t already out there? This is what sets you apart from competitors.
- An engaging campaign: Keep your community in the loop and engaged. If they’re going to pour money into your business, have a clean website, captivating video and some social proof that you’re following through.
What makes crowdfunding the “friendly way” to fundraise is that it allows you to intimately connect with a community that shares your passion and vision.
2. Peer-to-Peer Lending
Peer-to-peer (P2P) lending platforms provide another alternative to traditional banks by connecting borrowers directly with individual investors. Websites like LendingClub, Prosper and Funding Circle facilitate this borrowing and lending process.
Peer-to-peer lenders offer easier qualifications, lower rates for strong credit, and a fast online application process. On the flip side, rates can be much higher if the business owner has poor credit.
Engaging in P2P lending offers a friendly solution for entrepreneurs who prefer a more personal approach to financing. By building connections with individual lenders, you can potentially access capital at lower rates while forging valuable relationships.
3. Grants and Competitions
What if I said in exchange for your time, you could land free money? Grants are a great way to grow your business without applying for a business loan. In fact, grants are one of the most attractive financing options because they don’t need to be repaid.
Numerous grants and business competitions are designed to support small businesses across various industries which means there’s money waiting on your business to find it.
In some cases, grant recipients receive additional resources such as mentorship, training and business exposure. As you apply for grants you may feel inspired to refine your business plan. A quick word of advice: Do it.
While you’re at it, enhance your pitching skills and build a network of like-minded entrepreneurs. There is no one better suited to advocate for your business than the dreamer.
4. Strategic Partnerships
Are you ready for a helpmate? Collaborating with strategic partners can be a way to access creative funding and resources. Partnering with businesses or organizations that share your target audience or goals can lead to joint ventures, sponsorships or co-marketing initiatives.
These partnerships can not only provide financial support, but also access to a broader customer base and cost-saving opportunities.
When exploring strategic partnerships, focus on aligning your values and objectives with potential partners. Building strong relationships and delivering mutual benefits can result in friendly and fruitful collaborations.
Don’t shoot for the “obvious” choice
When you’re seeking out a potential partner, it’s hard not to shoot straight for the biggest name. Ask yourself: Will this person match my company’s energy?
Will they invest their time, resources and effort into catapulting my business even further than it is? Or are they just here to put their name on it, and maybe make a few demands?
Do think outside the box
Don’t make the mistake of overlooking smaller, less prominent businesses. You’re thinking strategically, remember? Find a partner with the same drive and innovative mindset.
Even with high loan rates and strict lending criteria, small businesses can still secure funding. Embracing creative funding ideas offers space for innovative approaches.
Tailor them to your specific needs and confidently embark on your journey to secure the financial support your business deserves. With determination and a strategic mindset, you can overcome funding hurdles and thrive in the world of entrepreneurship.
