7 Smart Ways to Fund Your Small Business Online Without the Bank Loan Burden

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7 Smart Ways to Fund Your Small Business Online Without the Bank Loan BurdenAre you trying to arrange seed capital for a start-up business? Then by now you must have realized it is quite an arduous task. Over past few years, the economic crisis worldwide has forced startup promoters and investors to tighten their purse strings. Therefore it has now become very important  that you think out-of-the-box to get your project financed. Most likely, a single source of finance might not be sufficient to fund your small business online.

Rather  it is always advisable that you try to source investments from varied channels. Compiled below are seven alternative ways that will set your business in motion, without you having to worry about the burden of a bank loan.

Raise Money from Family and Friends

If you are operating with a low budget, then the best way to fund your small business online is approaching  your close friends and family members. This is perhaps is one of the most common means to finance a start-up. Yet you should always try to avoid the one grave mistake of approaching  family and friends without a proper business plan. This is a fatal error for sure!

Raise Money from Close OnesYou might be very close to your loved ones, but you shouldn’t expect them to take the risk of funding a new business without knowing the future of their money.

In order to make them feel comfortable,  approach near ones with a solid blueprint of your business idea. A fact-based estimation of expected financial returns can be useful too. Provide an upfront clarification about the perks and risks of funding a start-up. In all likelihood, this will reduce the chances of unpleasant experiences in the future.

You Can Try to Rope in a Sleeping Partner or an Investor

Whether or not someone would accede to the proposal of pumping money into your start-up business, will totally depend on the business model, its future prospects, and how well you sell your idea. You Can Try to Rope in a Sleeping Partner or an Investor

A sleeping partner would provide the required funding, but being a partner, he/she will be entitled to business profits.

An investor, on the other hand, would essentially look for a Return on Investment (ROI), while you remain as the single owner of the organization.

You can consider a sleeping partner or an investor in the initial stages, as you can use their existing network to propel your business. No matter whatever the case is, you will have to be positive and stay focused on the growth and success of your new venture.

Fund Your Small Business Online Through Crowdfunding

how to start a crowdfunding campaign for a small business
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Though crowdfunding is not a long-term funding mechanism, it can still be an effective way to fund your project. If you are associated with one-off creative projects, such as documentary films, music albums, or a book release, then try crowdfunding  to source business fund without much hassle. There are a host of sites that offer project creators an opportunity to raise money at a relatively low cost.

People from around the world use crowdfunding sites to pledge their support for a range of creative projects, in return for a complimentary gift like a book, t-shirt, or an album copy. You can look at crowdfunding as a donation to promote innovative ideas, rather than a traditional business investment. However, if you are in a business that involves creativity, you can get your project funded in a matter of days, or even minutes.

Look For Venture Capital

Venture Capitalists, commonly known as VCs, are always looking for highly scalable businesses, which have the potential to grow into large corporation. If you have a unique idea that stands out, then you can approach a venture capital firm to fund your small business online. This band of investors, provide debt-free money to emerging start-ups, in exchange for a share in the business. VCs can ask for anything between 10 per cent to 30 per cent equity in the company, depending on the viability of the business and the risks involved. Look For Venture Capital

Venture capital firms are also answerable to their financiers. Therefore, they demand an active role in the company’s management as well. A controlling power in the management of the business, helps them secure the interests of their lenders. This, in most cases, is non-negotiable. You will need a DPR (Detailed Project Report), highlighting the financial projections of the business, in order to pitch your idea to a venture capital firm.

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Give Thought to ‘Factoring’ to Fund Your Small Business Online

Factoring is a financial arrangement, whereby an enterprise sells its bills to a finance company, which facilitates an upfront payment of the bills before its due date. The finance institution normally charges a fee of 1.5 per cent to 2 per cent for reimbursing an enterprise’s receivable invoice 30-days in advance.  If your company is suffering a cash crunch due to high order volumes  then  bill discounting can prove to be highly beneficial.

Factoring’ to Fund Your Small Business OnlineBill discounting is a seamless method to fund working capital requirements. However, the system is working out to be an expensive proposition for most companies in the era of an economic slowdown. The good news is, a variety of alternative options are rapidly evolving in the financial ecosystem, which promise to make the Factoring landscape more competitive.

One such discounting method is The Receivables Exchange. You can try this new process to offer receivable invoices to a number of financial intermediaries at the same time, e.g., banks, hedge funds, and other non-banking finance companies. The finance institutions then bid on the bills that you have offered,  and thereafter, the discounting contract is awarded to the most competent bidder.

Get in Touch With Angel Investors

An angel or a seed investor can come in different avatars, may be a friend, a family member, or a complete stranger. Angel investors are basically rich, well-to-do individuals who fund start-ups in exchange for an ownership in the business. Even though the pattern looks similar, this route slightly differs from venture capital. In case of raising money through venture capital, start-ups have to approach a VC firm.  In the case of angel investment, businesses are often approached by angel investors.

Get in Touch With Angel InvestorsAnother difference is, you can negotiate with an angel investor to leverage a better contract. But with venture capitalists, there is practically no scope of negotiation. Angel investment is primarily a trust-based funding mode. Therefore, your goodwill has a critical role to play. Besides futuristic business plans and projections,  a clean repayment track record can open the door of your business to a host of angel investors.

Angel investment, over the years, has remained the backbone of top-notch start-up enterprises. You too can use the financial support to your advantage to fund your small business online.

Try to Apply For Grants and Subsidies

If you have an idea that benefits the public, then your small business might be eligible for special grants. There are several government bodies and non-governmental organizations that offer grants to businesses if they meet certain qualifications and eligibility requirements.

Try to Apply For Grants and SubsidiesFor instance, if your emerging businesses is related to waste management, renewable energy, or artificial intelligence, then you can apply for grants from both government and non-governmental organizations.

Since grants are not required to be paid back, you should be prepared to face stringent guidelines and monitoring measures. These are to make sure that the recipient of the grant is using the funds for the purpose it was offered for. While applying for a grant you need to go through  a tiresome process. It is, nevertheless, an excellent way to fund your small business online.      

Here’s a summary of all 7 ideas to fund your small business online –

  • Raise Money from Close Ones
  • Try to Rope in a Sleeping Partner or an Investor
  • Fund Your Small Business Online Through Crowdfunding
  • Venture Capital
  • Consider ‘Factoring’ to Fund Your Small Business Online
  • Angel Investors
  • Grants and Subsidies

Irrespective of which route you take to fund your small business online, your attention should be entirely focused on the business, its growth, and profitability.

Let us know what’s your top pick to fund a small online business?

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Sweta Dutta

Sweta is a veteran content creator, passionate traveler, movie enthusiast, music lover (reasonably good singer!), an informed reader .... and a coffee connoisseur! She has over 10 years experience in developing content for small businesses, internet marketing firms, website development companies and internet entrepreneurs. The experience has helped her develop in-depth knowledge about small business online which she now shares on the OnlismallbiZ platform. In her own words, "I am a dreamer and a doer!"