How Do I Expand When I Can’t Get Money From the Bank?
It is all too common in 2012 that entrepreneurs and business owners have a great company that is making a profit in difficult economic times, and yet the traditional financial institutions reject an application for a loan. Reasons for needing the loan vary from buying more stock to increasing marketing expenditure to buying bigger premises.
This isn’t just a problem in the USA or the UK, but worldwide. As banks try to purge their balance sheets of toxic debts, rules of lending have become more stringent, and even a business with a great credit rating may struggle to get the go-ahead from its lender.
However, as one market closes, others open. The technological advancements over the last 10 years have made it possible for small and medium sized businesses to source finance in different ways; even startups and one-off projects can benefit from them. Here are some of the most popular new options:
Mainly used in the property market as a source of funding when a chain collapses or at property auctions, as the bridging loan market matures it is becoming a viable option for corporate and business short term loans. This is especially useful if you have a lot of equity in your assets and are looking for a capital injection to fund growth in your business.
Bridging loans can be used to quickly respond to market changes, as the loans are usually approved within a week. This can allow you to buy more product or invest in a new asset in order to take advantage of the market. With low rates, bridging finance is quickly becoming an option that many firms are taking advantage of.
Peer to Peer Lending
A variety of websites, such as The Lending Club, have been set up for investors who are looking to see a return on their investment with startups and small and medium-sized businesses looking for capital. The website shows an individual’s or business’s credit rating, how much income they are receiving and other data which allow the investor to make a rational decision. The less chance you have of defaulting on your loan, the lower the rate of interest.
This is often quite an expensive way of sourcing finance; however, dealing with one person instead of an institution is a lot easier and could lead to a relationship being built. Eventually, your one time investor could become your business partner and offer advice as well as money.
Angel Investment and Venture Capital
The internet has reduced barriers between individuals and investors, and there is always a pool of entrepreneurs looking to participate in the next big idea. If your business is in the early phase of development, but you know a market exists and you provide an innovative service or product, you should certainly look into pitching to investors. Not only can they provide the money, but they can also advise you on your strategy and get in touch with their other business partners and help in other ways. Don’t be afraid to let go of some of your business equity as it often makes people work harder to ensure they see a bigger return.
There is a lot of hype over this kind of finance, and it truly is a revolutionary way to raise money. By simply listing your product on one of the many crowdfunding websites, it allows people from all over the globe to invest as little as $1 up to the full amount you are looking for. This requires offering incentives to encourage people to give their hard-earned cash to you, including equity stakes for the higher amounts. However, this often requires a marketing budget in itself to get the funding off the ground and attract people’s interest. A lot of the projects never receive the full amount of funding and are therefore left without any money. Crowdfunding is especially useful for innovative ideas, specialized products and niches.
Overall, there are countless ways in which your business can raise money without the help of a bank. People in business have long memories, and the damage that has been done to traditional lending methods may be permanent as people looking for finance move into ever more innovative ways to borrow money.
Written by Jonathan on behalf of Balmoral Bridging, which offers Bridging loans for commercial purposes lent against high value assets such as property.