Growing a business costs money, and for most small business owners getting a loan will be a necessity. In the past, in order to obtain financing for your small business you would need to go to your local bank and navigate the arduous process of applying for a business loan.
But times have changed.
As the economy continues to rebound, the relationship between small businesses and big banks has changed considerably. These days, many banks don’t lend to small businesses like they used to, which has left many business owners wondering how to access the capital they need to keep their doors open and their business growing.
The good news is you don’t need a traditional bank to get the funding for your business. Canadian business owners have other trustworthy sources of business financing at their fingertips.
And in many ways, these are easier to deal with than the big banks. There are many options, so it comes down to doing your research to determine the best financing method for your needs.
Modern Alternatives to Bank Loans
With these exciting innovative options, you can get the money you need to build your small business without jumping through hoops at your corner bank:
Over the past few years, crowdfunding has skyrocketed in popularity to become one of the most attractive methods for raising money. To access crowdfunding, an entrepreneur posts his or her project on a crowdfunding platform such as Kickstarter or Indiegogo, and people from all over the world can support it by making donations in exchange for a perk from the entrepreneur.
In 2012 alone, more than one million successful crowdfunding campaigns were executed; 17 per cent of these were for business and entrepreneurship. Forbes predicts that we could see over $10-billion in crowdfunded transactions in 2014. The Globe and Mail also has a great rundown of the 10 most successful crowdfunding campaigns in Canada.
2. Merchant Cash Advances
With this bank loan alternative, you receive a lump sum of money and repay that amount plus an additional fixed fee, typically over several months. There’s no set monthly payment, interest fee or due date—you pay a small percentage of your daily debit and credit card revenue instead.
Merchant cash advances are a great option for restaurants (which rarely get approved for traditional bank financing), businesses with cash-flow issues (such as long or unpredictable slow periods), as well as people with bad credit. In general, you have to have been in operation for more than one year to qualify, and you must accept debit or credit card at your business.
3. Micro Loans
As them name implies, micro loans are small loans given to entrepreneurs to help them get their business off the ground. What makes micro loans different from bank loans is they are typically for small amounts and they aren’t usually based on credit rating or collateral.
Micro loans are often designed specifically for women, minorities, low-income entrepreneurs and young entrepreneurs. The process usually involves business coaching to help the entrepreneur increase his or her chances for success.
What are your experiences using these alternatives to getting a bank loan for a small business?