3 Alternative Sources Of Funding

A recent American Express OPEN Small Business Monitor survey found that  37 percent of small business owners expect to grow their companies
April 28, 2011

A recent American Express OPEN Small Business Monitor survey found that 37 percent of small business owners expect to grow their companies this year, with 35 percent planning to hire staff, and 44 percent expecting to make capital investments.

Doing those things isn’t cheap, however. Among respondents, 66 percent reported cash flow concerns, up from 53 percent six months ago. And 29 percent of those surveyed said access to capital has gotten tougher in the past six months. That could pose an obstacle to growth.

What should you do if you can’t afford to finance your company’s growth out of cash flow? Don’t overlook alternative financing.

Here are some sources to consider:

Community development credit unions

To provide financing to businesses that lack access to the traditional financial services community, socially minded investors and lenders direct money into community development financial institutions (CDFIs), such as credit unions that serve low-income communities. The Social Investment Foundation Forum found that assets in community institutions—including banks, credit unions and loan and venture capital funds—rose by more than 60 percent to $41.7 billion in early 2010. If your business is located in an area that is underserved by banks, check out the website of the National Federation of Community Development Credit Unions to see if there’s a small business-friendly lender in your community.

Crowdsourced funding sites

Websites like Kickstarter, which let you post information about your business idea and seek startup funding from small donors, are proliferating. They can be an especially good fit if you’ve built strong connections with contacts on social networking sites because sites like Facebook make it easy to broadcast information about your financing campaign. Each crowdsourced funding site has its own milieu. Some cater to business types while others are focused on artists, musicians and social ventures. In addition to Kickstarter, AppbackProfounderand 33Needs may have the money you're looking for.

Peer-to-peer lenders

Even if you don’t qualify for a small business loan from a bank, you may be able to borrow money from individual investors looking to get better returns than they might otherwise through sites such as Lending Club and Prosper. Lending Club’s site says rates start at 6.78 percent APR, while Prosper says they begin at 7.4 percent. Your credit score affects your interest rate, so if you’ve been diligent about paying bills on time, you may find the deals on these sites attractive. Lending Club says it funded more than $16.5 million in loans in the past month.

And if you've exhausted these three alternatives? Take a close look at your cash flow and your cost structure. Transforming fixed costs to variable costs and getting creative with vendors and like-minded small business owners (barter for big savings) can free up some money for growth. You may not grow as fast as you might with a healthy investment, but you aren't giving up equity—or taking on more debt—either.