Loans and alternative sources of financing can be helpful for new businesses, but sources of capital for startups that are used to aid businesses in growing and expanding their operations can vary and, depending on the route a business owner takes, could either be greatly helpful in their small business goals or may create problems if not properly implemented and offer opportunities to use capital as a way to wisely invest in their organization.
While traditional loans are one of the starting points for many businesses, there are also credit unions and peer to peer lending networks that can offer businesses capital that may either be more affordable or more easily accessible as, in some cases, new businesses could have a difficult time finding funds for a startup. Peer-to-peer lending, as an example, can be helpful as individual investors may simply see a company and like the idea they promote or services they wish to provide, but consumers must be careful when it comes to entering into agreements in these instances as there are some cases where unfair practices from a lender or excessive costs could be associated with a specific alternative financing opportunity.
Yet, these peer-to-peer networks are just one source that business owners have used, as there are businesses and entrepreneurs who are getting financing from simple outside investors like family members or well-established investment companies. Obviously, when it comes to financing opportunities outside of traditional small business loans, there are some advisers who are concerned about mistakes that may be present within a new company which could cost them funding or could slow their growth.
As an example, companies who may issue stock as a way to raise capital are advised to show restraint as there are different types of stocks a company may use to open up investment capital opportunities. Some basic advice on issuing stocks for new businesses from Foxbusiness.com states that, “Business founders should receive common shares. Preferred shares should be set aside for future investors.” Obviously, wisely setting up stock options for potential investors will be beneficial in the future as, again, companies that are growing and may need further financial support will greatly be able to benefit from the sale of stock options, but when it comes to financing for companies who may not offer stocks, there are also sources of capital that can be made available outside of this particular financing methods.
While, again, there are loans available for small businesses outside of large financial institutions, as credit unions or community banks, as well as ,specific programs like those from the SBA may offer loans or microloans to new companies, looking for investors is, once again, another option that companies could access if capital may be needed and a small business loan is either unavailable or a company wishes to avoid debt. In some cases, new businesses may be able to find outside investors who will offer financing to a company in exchange for compensation later, if a company grows and see success. Yet, with this particular source of financing, many business owners may either need to have a close relationship with an investor, again like a family member, or they will have to diligently prepare a presentation to outside investors as to why their company is felt to be a good investment and could yield returns on any investments made. No matter the financing methods a company chooses, business owners often will explore different options, simply weigh the pros and cons of these sources of capital, and see which plan best fits with their business and goals. However, avoiding excessive costs or commitments that could later hurt a business owner are obviously aspects of alternative financing that entrepreneurs must be aware of when working with non-traditional investment options.