If you have plans to launch a business of any size this year, one of the most important decisions you’ll need to make is how you’ll be financing your business. In 2016, we saw the rise of crowdfunding and other online lending options — business financing trends that we anticipate will continue into the next year.
Still, there are a few additional business financing trends you’ll want to be aware of as you contemplate your startup’s plans.
Alternative lending options
These days, entrepreneurs are becoming increasingly web savvy, so going through the long and drawn-out process of applying for a “traditional” bank loan isn’t always ideal. As a result, banks and other lenders have begun to take their lending applications online — and have sped up the approval and money transfer process quite a bit. Today, with alternative online lending options, hopeful business owners can apply for a loan from the convenience of their computer, receive an instantaneous decision and have approved funding transferred into their bank accounts in as little as one to two days. This is ideal for entrepreneurs who want to hit the ground running, or even those who may have been denied for a traditional bank loan in the past.
Since alternative lending has gotten increasingly popular, the competition has as well. With literally dozens of lenders to choose from online, entrepreneurs have the luxury of being able to shop around for the best rates and loan terms.
Crowdfunding remains king
Crowdfunding for businesses really took off in 2016, and it is only expected to continue growing in popularity into 2017. With websites like Kickstarter and GoFundMe, hopeful business owners can now pitch their business idea to the masses and collect financing from everyday people.
The great thing about crowdfunding is that it doesn’t require quite as detailed and rehearsed of a sales pitch, and there aren’t any “formal” investors involved. Instead, a community of users fund as much or as little of the business as they feel comfortable with. Plus, it’s not unheard of for a single campaign to raise tens of thousands or even hundreds of thousands of dollars.
Before turning to a crowdfunding site to raise money for your business, though, be sure to know your target audience. Unfortunately, a large portion of the investing sector is still unfamiliar with how crowdfunding works or sees it as being too risky, so you may be pitching to a smaller crowd than you’d hoped.
Bootstrapping (paying for your business costs out of your own pocket) isn’t something that everybody is fortunate enough to be able to do. Still, it’s becoming more and more popular, especially among entrepreneurs who want to simplify their financing as much as possible.
As Census Bureau deputy director Thomas Mesenbourg noted in a release:
“Most businesses are started by people who dig into their own pockets for at least some of their start-up capital,” and more than one in five said they used no startup capital at all in 2007.
By funding your own startup, you retain 100 percent control of your company, and you don’t have to worry about interest, fees or monthly payments. At the same time, all the money you’re putting into your business is your own, although you risk losing it entirely if your business isn’t successful.
Perhaps more than ever before, having a great credit score can really pay off when it comes to financing your business. Lenders (especially banks) have become increasingly strict with their borrowing requirements, so taking the time to pull your credit score with all three major reporting bureaus before you start applying for business loans is a must. By understanding how different inquiries and actions can impact your credit score, you can make financial decisions that improve your credit and increase your chances of being approved.
These are just a few of the small business financing trends we’re expecting to see emerge and continue growing in popularity in the next year. Only time will tell what other changes are in store for entrepreneurs and funding.