Small businesses can use these non-conventional methods of business financing



Arranging business finance is never easy in the challenging economic times regardless of whether you need it for expanding the business, to tide over some financial crisis encountered temporarily needs funds for a start-up. But considering the tough times that we are passing through, securing funds is even much more challenging by depending on external financing sources. To find the money you need, it makes better sense to look within yourself to explore the options of funding business by some non-conventional means without knocking at the doors of lenders and investors. 

Think about Factoring

Small businesses often take to this method of business
financing that involves the company selling its receivables at a discount and in exchange for collecting cash. This method is useful for companies with poor credit or some businesses like apparel manufacturing, which must wait very long to recover payments after executing orders. This method of financing is expensive because companies must pay a fee in terms of a percentage of the invoice value, which constitutes the receivables. For example, if you pay a 2% fee for getting the money 30 days in advance, it translates into 24% over a year. Only if you can afford the cost of money and when other financing means are not viable that you should consider factoring.

Use a credit card

Whether or not to use a credit card to fund your business depends on your risk appetite. Your credit card provides instant money that sometimes helps to bail you out from the crisis, but decides carefully because the use of credit card impacts your credit score and faltering to make timely payments can severely damage the score. On the other hand, making minimum payments every month might help you to stay afloat, but it could suck you into a debt trap that could prove disastrous in the long run. However, if you are confident of using your credit card responsibly, it should help to shore up cash flow and get you out of the occasional jam.

Trading future earnings for funding

This method of funding is not only quite unusual but suits only a selected few who are ambitious, young, and willing to bet on the future earnings. The method entails inviting investors and offering them a percentage of your future lifetime earnings in exchange for the funds. The method has some similarities to venture to fund but more informal in nature and looked upon as personal investment contracts. However, you need to check the legality and enforceability of such contracts before considering it.

Make use of your 401(k)

If you have ever been employed and have accumulated funds in 401(k) but now want to test your entrepreneurial acumen by starting a business, then your hard-earned money over the years can be a source of funding. Using the fund is very much possible without attracting the penalty provided you follow the right steps stipulated in the tax provisions.

Despite legal complexities, the steps are simple, but you must seek professional guidance in setting up a C suite and appropriate retirement plan to make use of your retirement assets. 



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