Are you raising capital the best and fastest way possible? Other than using your own savings, you can fund your business by borrowing from family and friends and applying for bank loans. Borrowing can be tricky though, especially when it involves personal relationships and debt you’re hoping to pay off through a business that hasn’t taken off yet.
Here are three fund-raising alternatives that don’t endanger your personal relationships and don’t take too much time away from actually running your business.
Trade credit. For businesses that use tangible assets (like furniture, computer hardware, food carts andrestaurants, among others), owners can arrange for 15-, 30- or 60-day payment periods with trusted suppliers. This arrangement buys you time to generate business revenue before paying off the raw materials you used. Term payments also help you to stay liquid, as you don’t have to pay your suppliers as soon as their deliveries are made.
Trade credit doesn’t happen overnight however, and you can only ask for waived interests and penalties if you’ve already established a relationship with suppliers. If you’re just starting out, you can try tapping your neighborhood retailers to partner with you or recommend you to their wholesalers. You could go as far as providing a business plan, proofs of billing and payment, and collateral to show your ability to pay.
Social lending. Remember when lending was based on trust and reputation and not on bank history? Imagine the community lender knocking on your neighbor’s door to ask about your lifestyle and how trustworthy you are; your neighbor’s testimony then serves as the lender’s basis in giving you money. This traditional method inspired online reputation and lending startup Lenddo, incorporated in January 2011, “to give people an easy way to build their reputation online via social media, and gain access to financial services.” In approving loans, Lenddo factors in your Lenddo Friends (people you trust and can vouch for without hesitation) and Lenddo Score (built-in credit ratings showing compliance with requirements and financial stability).
It’s microfinance in a social-media environment, and a lot of members have been using the credibility they built on Lenddo to borrow money for small and sideline businesses. If you’re part of a trustworthy group, not only do you get a high credit score, but lower interest rates as well.
Crowdfunding. No longer limited to funding artistic pursuits, crowdfunding has also benefited startups both in terms of raising capital and branding. Crowdfunding is an Internet phenomenon that entails fund-raising from several—often many— individuals who believe in your project. The response you get from “crowdfunders” often is an indication of how much interest your ideas could generate in the bigger market. It’s also a more professional way of asking for money, where you can just send a link of your customized website and video to family and friends and to others in your social network together with your appeal for funds. If your online campaign achieves or surpasses its targets, it’s great proof of your idea’s viability. In the process, you might even attract investors to grant you more funds, and the media to cover your story.