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Creative Financing For Small Businesses

Guest post by: Karlene Sinclair-Robinson

Article Overview: Creative financing is an interesting concept that has many business owners wondering how it could work for them. Many business owners are still not aware of the non-traditional financing methods that are taking the place of traditional bank loans or are working in conjunction with banking institutions. Some of these creative financing methodologies are not loans. They cannot be accessed through traditional financing sources based on their conceptual makeup. The conceptual makeup of some of these options could include the use of your creditworthy clients, government contracting capabilities, current paper or tangible assets, or even the use of your future expected payments.

Creative Financing For Small Businesses

Creative financing is an interesting concept that has many business owners wondering how it could work for them. Many business owners are still not aware of the non-traditional financing methods that are taking the place of traditional bank loans or are working in conjunction with banking institutions. Some of these creative financing methodologies are not loans. They cannot be accessed through traditional financing sources based on their conceptual makeup. The conceptual makeup of some of these options could include the use of your creditworthy clients, government contracting capabilities, current paper or tangible assets, or even the use of your future expected payments.

When business owners']);"> small business owners can look “outside the box” to get the financial assistance that they need, this creates a win-win-win situation. A lot of creative options require a banking institution be involved but do not necessary require them to be a part of the process. When these financing options are used effectively, many small business owners, and even large corporations, usually see the benefit.

Banking Risk Tolerance

It is often said that “Banks are not lending”. This is not true. Banks are in the business of lending. Without completed loan transactions, banks would go out of business. The issue you face, as a business owner, is the banks’ tight lending practices, especially in today’s tight lending market. When this affects you negatively, the simple truth is that you and your business do not fit that particular bank’s lending model or their level of “Risk Tolerance”. Banks are averse to risking their capital.

Conservative lending institutions such as banks will not risk their money to support your venture. Your venture or business must show sustainability in advance. This will make that lender happy to loan you money.

Creative Financing Solutions

This financing model varies across a number of sectors and is not contained in its lending practices like traditional institutions. Creative financing solutions develop based on a demand or the need to solve a financial issue for a large group. When business owners are denied access to capital through the banking sector, not everyone will give up on their dream of moving their business forward or be satisfied simply surviving through economic hardship.

Creative financing sources address the demand for access to capital in a variety of ways. These options are usual provided and operated by private companies. Many have private investors who prefer these types of investment avenues. These solutions go across all types of business sectors including medical, construction, food, manufacturing, government, and more. When a business owner seeks out this kind of financing, the success factor is dependent on the industry, payment sources, customer or client’s credit report and score, current contracts and much more.

Types of Creative Financing

Factoring – Most companies that must produce an invoice after the delivery of goods or services can use this option. This model facilitates the sale of your invoices (assets) in exchange for cash. This option is not a loan.

Equipment Lease Financing – is a loan. You are able to purchase the necessary equipment for your business and pay in installment payments instead of having to pay the full price of the product upfront. There are tax incentives, so talk with your CPA.

Micro-Loans – are available both through traditional financing and creative financing sources. The difference between the two is in the terms offered. This option can fill a gap if you need a larger loan. Use it appropriately and you can always reapply.

Peer-to-Peer Lending – This is a loan program that is available online. Through many online peer-to-peer lending sites, you can obtain up to $25,000 depending on your need. This concept takes a crowd of people lending you small amounts equaling the amount you need. The important thing to note is that the risk to the individual lenders is minimal as many choose to lend in small amounts as low as $25.

Crowd Funding – has gotten a lot of attention in the last few months. Two year ago, this option was nowhere on the radar of financing options. Today, between sites such as IndieGoGo and Kickstarter, you can now raise funds for your project or business and do not have to pay it back. Now, this does not mean you do or give nothing in return. It simply means that you will repay the crowd or group of individuals that believed in you enough to give you a set amount with non-monetary items.

This concept simply uses a crowd of individuals to finance you. This is not a loan. It is similar to the “Barter trade” system. A good case in point – you want to publish your book but don’t have enough marketing capital. When you announce this project to your audience, they will support you based on your pledge to give something in return. An example of this would be someone pledges $25 and once the book is published they get a copy of the book or an ebook version.

Finally, business financing is no longer tied to just the banks. Individuals and other organizations realize that we must find solutions where there are problems, and that is exactly what these creative financing sources have done.

Remember to do your research before approaching a source so you do not waste your time or theirs. Go make it happen!

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Article Tags: business financing, creative financing, crowd funding, crowdfunding, factoring, financing solutions, lending institutions, peertopeer lending, small business



Related Forum Posts
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
Startup Challenges - Kevin - it's a great read - you should pick it up! John - what kind of services are you offering? Your signature says "Providing Big Business Resources to Small Businesses" I have always found big companies to be hard to work with and slow to make decisions but smaller companies are more risk-tolerant and understand the online world.
Happy Worker as of Dec 31 2007 - Here's mine... I'm now off to make an offering to the business planning gods for their help in getting to these goals & beyond. To the combined success of Prophets 2 Profits! ----------------------------------------- 1) Corporate a) Retail - Sales reps covering all major markets (1M or more) - Retail product launch plan - 1 more retail release (TBD) b) The Toy Agency - Systems for: o Creative process o Pricing o Manufacturing o Logistics - Marketing agency strategy in place - 1 new customer every 2nd month (5 new customers); 1 of which will be rev of >= 500K/year c) Business - Creative talent pool management strategy & process - Outsourced and/or weekly bookkeeping - Monthly budgeting & forecasting - Better banking organization (Line of Credit, CCs, automate billing for appropriate vendors) - Team total of 5 - Larger office d) Web site - Daily updates - Start of separation of Blog/TTA/Retail 2) Personal - Most weekends “off”! - Entirely separate personal finances; basic personal financing plan - Family….?
Re: What would you do if you knew you could not fail? - I would write a screenplay, and possibly be involved in making the movie. Creative writing is something that I love to do, but it is a bit of a leap from being an unpublished to a published author. If I knew I could not fail, I would write as often as I could.
grants for restaurants - Well friend I don’t have any idea about government grants for restaurants, but I will recommend that you may try on some banks who offer loans for small business where the government will have some guarantee. Beside that Restaurants business is very risky so some of banks who gave some Financing Loans they will look at on it if there is enough solid business plans.


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