Small businesses are no strangers to challenges – they face a complex blend of obstacles that can seem overwhelming.
From limited financial resources to the struggle to stay technologically relevant, these hurdles can slow down even the most determined entrepreneurs.
But here's the thing: challenges are meant to be overcome.
And that's where you come in – armed with the right strategies, you can transform these hurdles into stepping stones for success.
Think about it – securing funding might seem like an uphill battle.
Still, with the right approach, you can fuel your growth, invest in cutting-edge marketing strategies, and navigate unexpected financial dips.
We get it – competition from big corporations might seem daunting, but let's not forget the power of innovation, personal touch, and agility that small businesses inherently possess.
This article will cover the best business funding options for small businesses that you can use for operational expenses, investing in marketing and technology, or weathering unexpected financial downturns.
Traditional financing options are common avenues for small businesses to secure the funding they need.
However, due to stringent eligibility criteria, accessing these financing options can take time and effort.
Banks typically evaluate factors such as the business's credit history, revenue, time in operation, collateral, and the owner's personal credit score.
Meeting these criteria can be difficult for startups or businesses with limited credit history or those looking for quick or smaller funding.
However, if you are struggling to get a loan from a bank or are not satisfied with your current options, know that the following alternative business funding options for small businesses are worth considering.
Asset-based financing is a type of alternative financing that involves using the business's assets as collateral to secure a loan or line of credit.
This option is particularly beneficial for small businesses, including ecommerce ones, that have valuable assets but might not meet the traditional criteria for obtaining a loan.
It involves using assets as collateral, such as:
The way it works is that the lender assesses the value of these assets and provides a loan based on a percentage of their appraised value.
If you default, the lender can seize and sell the collateral to recover their funds.
For small businesses, asset-based financing can be valuable in several ways:
1. Inventory Financing
Ecommerce businesses often hold substantial inventory.
Asset-based financing allows them to leverage this inventory as collateral, securing funding to restock, launch new products, or scale operations.
2. Accounts Receivable Financing
If you extend credit terms to customers, you can use the outstanding invoices to secure financing. Thus, you will ensure access to cash even before customers pay their invoices.
3. Seasonal Businesses
For example, you have a company that sells swimwear and beach accessories.
You can experience significant fluctuations in sales throughout the year, with peak demand during the warmer months and a decline during the colder seasons.
Short-term funding can help you to balance your cash flow.
4. Rapid Growth
During spring and summer, when people plan beach vacations and spend more time outdoors, there is a surge in demand for swimwear, beach towels, sunglasses, sunscreen, and other products.
This is when the business experiences its peak sales period, and marketing efforts focus on capturing customers' attention and preparing for the holidays.
Asset-based financing provides a way to access working capital to support expansion.
5. Equipment Financing
Ecommerce businesses rely on technology and equipment. Asset-based financing can help fund equipment purchases, upgrades, or maintenance.
7. Startups and Limited Credit History
Asset-based financing can be accessible to businesses with limited credit history or startups lacking track records, as it has less stringent eligibility loan criteria than traditional loans.
✅The use of funds for various purposes, including restocking inventory, expanding operations, or addressing cash flow gaps.
✅ It often involves a faster approval process than traditional loans.
✅ Tailored financing that offers a flexible and personalized approach that aligns with the growth plans.
✅ Improved cash flow by converting assets into immediate working capital.
✅ It supports businesses during periods of growth, allowing them to seize opportunities and increase their market share.
❌ Interest rates and fees can be higher than traditional loans due to the added risk and collateralization of assets.
❌ The assets may be forfeited if you don't repay the loan by the agreed terms.
❌ The value of assets is subject to appraisal and evaluation, which impacts the amount of funding available and the financing terms.
❌ It might not be suitable for businesses without valuable tangible assets or those heavily reliant on intangible assets like intellectual property.
MeadowGoods applied for Myos stock finance – they will use their preexisting warehouse stock as collateral.
They agreed to the following terms with Myos:
MeadowGoods started selling their items a month after they received the financing, so they decided to make the first repayment 3 months after the contract began.
At month 4, they repaid 20% of the loan, and Myos released 20% of their inventory for MeadowGoods to sell.
At month 6, they paid back another 40% and finally repaid the remaining 40% at month 10, closing the project.
Revenue-based financing (RBF) is an alternative financing that blends debt and equity financing, creating a structure based on a company's revenue performance.
It is a funding model where a business receives capital from an investor in exchange for a percentage of its future revenues.
Here's how it works:
✅ If revenue decreases, payments decrease accordingly, easing financial pressure during lean periods.
✅ It doesn't involve giving up ownership or control of the company.
❌Effective interest rates can be higher than traditional debt financing, particularly if the company experiences rapid revenue growth.
❌ If a company's growth is slow, it might take longer to repay the funding.
❌ Since payments are directly tied to revenue, the company must share a portion of its revenue, potentially affecting its cash flow.
❌ RBF might not be widely available, and the terms can vary significantly between lenders, making it essential to negotiate favorable terms.
Crafting a compelling pitch and presenting it on one of the premier crowdfunding platforms will require some effort.
However, crowdfunding stands out because it can finance endeavors that traditional lenders might shy away from.
Additionally, it offers the possibility of receiving early feedback from your audience, which can be valuable for refining your product before it officially hits the market.
Let's say you have a startup creating technology to protect endangered animals.
So, you launch a crowdfunding campaign on a platform offering the following rewards:
Contributors get involved, choosing rewards that resonate with them.
As funds accumulate, you advance on your mission to protect endangered species.
✅ Crowdfunding welcomes new campaigns anytime, enabling you to embark on your funding journey when it suits you.
✅ There are no stringent prerequisites that you need to fulfill, streamlining the process.
❌ Running a crowdfunding campaign demands considerable time and effort. From creating appealing content to managing promotional activities, it can divert focus from core business operations.
❌ Effective campaigns require high-quality visuals, persuasive copy, and engaging marketing strategies which can be costly.
❌ It requires strong marketing skills and a robust online presence to capture the interest of potential backers.
❌ Backers might expect input or involvement in the business once a campaign is live.
❌ Sharing business concepts openly on crowdfunding platforms exposes them to potential copycats, which could undermine a business's competitive advantage.
❌ Successfully funded projects often face pressure to deliver on time and meet backers' expectations. Delays or setbacks can lead to reputational damage.
❌ Crowdfunding can result in numerous small investors, leading to a fragmented capital structure that could complicate future funding efforts.
Using your personal assets to fund your business has several benefits.
Although it may not be as exciting as crowdfunding or finding an angel investor, self-funding can protect you from taking on large debts or giving up equity.
Essentially, you have control over your business and its assets.
While it's possible to deplete your savings, you'll be debt-free and won't have to spend time looking for funding elsewhere.
Aside from your personal resources, family and friends may also be open to supporting your business.
However, this does come with some personal risk as their investment may not align with your spending choices.
Nevertheless, those closest to you may take a chance on your business when traditional banks won't.
Still, using personal assets as your funding source doesn't mean you can't seek external support later.
✅ It can provide immediate access to capital, allowing you to address urgent financial needs.
✅There are no debt obligations, reducing the financial burden on the business.
✅ It doesn't involve giving up equity or ownership stakes, ensuring that the business remains under your control.
✅ You have greater flexibility in deciding how and when to repay.
❌ Pledging personal assets puts your financial security at stake. You could lose your savings, property, or other valuable possessions if the business fails.
❌ Borrowing from family or friends can strain relationships if repayment becomes challenging.
❌ Liquidating personal assets might prevent you from pursuing other investment opportunities offering higher returns.
❌ Tying up personal assets in the business might limit your ability to address personal financial needs or emergencies.
❌ Transferring personal assets to the business can have tax implications, affecting personal and business tax obligations.
❌ Valuing personal assets accurately for business purposes can be complex and might require professional assessment.
The allure of finding an investor to propel your business forward has surged since the rise of the TV show "Dragons' Den," where aspiring entrepreneurs present their business ideas and inventions to a panel of seasoned investors, often referred to as "dragons."
The dragons are successful businesspeople, investors, and entrepreneurs who evaluate the pitches and decide whether to invest their money in exchange for equity in the presenting businesses.
This dynamic eliminates the need to repay a loan; instead, the angel investor shares your company's profits.
Often, angel investors support businesses that conventional lenders perceive as too risky.
They frequently provide a hands-off mentoring role rather than asserting control through board seats.
Angel investing has gained popularity as a funding solution for small businesses due to factors that make it attractive to entrepreneurs and investors:
✅ It allows negotiating investment terms tailored to the business's needs.
✅ There is no debt you need to repay.
✅ Angels often take a patient, long-term approach to nurturing the business.
❌ Giving up ownership in exchange for investment can dilute the founder's equity.
❌ Investors might influence decisions or directions, potentially conflicting with your vision.
❌ Investors anticipate returns, which can lead to pressure to achieve rapid growth.
❌ Relying heavily on angel funding can be risky if future funding rounds are challenging.
❌ Considerable effort is required for successful investor search and pitches.
We understand that securing funding is crucial for the success of your business.
With the numerous funding options available, you'll be able to find the perfect alternative business funding option to suit your needs.
Asset-based financing is an excellent choice for small businesses as it offers flexibility, the use of collateral, and growth potential.
When collaborating with Myos, online retailers can experience a range of advantages:
✔️ Versatile Funding Spectrum – You get a range of funding options, from €10,000 to up to €2,500,000, to get the financial support you need to achieve your business goals and expand your operations.
✔️ Simplified Application Procedure – Our application process is designed to be efficient and convenient for you. We have minimized the documentation requirements, allowing you to save time and focus on your business without the burden of extensive paperwork.
✔️ AI-Driven Lending Assessments – Our lending determinations are based on advanced AI algorithms and forward-looking prognostications of your prospects. We don't solely rely on historical performance but also evaluate the products you market, which leads to a more comprehensive evaluation of your business potential.
✔️ Exemption from Personal Risk – Opting for our funding alternatives absolves you from personal risk exposure. It is important to recognize the importance of separating personal and business finances to have confidence in pursuing your entrepreneurial goals.
So, why delay?
Get a non-binding offer from Myos today, and amplify sales while propelling your business growth!