![]() ![]() In invoice factoring, the lender looks at the business's accounts receivable-the money owed to the business-and uses those promised dollars as collateral for what is essentially a loan. Online lenders have developed products known as invoice factoring and merchant cash advances, which come with very high-if not exorbitant-interest rates and strict repayment rules. "The big mistake with families is not putting things in writing." Invoice factoring or merchant cash advancesīusinesses that aren't well qualified for traditional or online loans or lines of credit may turn to alternate funding structures for capital. "Every time they walk in the house and say 'How's business?' the person who borrowed the money is going to think it has to do with the money," she says. She recommends putting everything in writing so that expectations are clear and casual comments about the business won't be misconstrued. Tayne, financial attorney, author, and founder and director of Tayne Law Group, notes that taking money from family members can put pressure on your social interactions. It's critical that borrowing from friends and family be as formally structured as borrowing from any other lender. And don't take their need for repayment any less seriously because they love you. ![]() Just don't expect them to give you money out of the goodness of their hearts. Perhaps your friends and family are willing to invest for the promise of a nice payback or a stake in the company. It's fairly common for small businesses that are just starting out to look to those they know for some funding help. Formalized borrowing from friends and family And, if your venture isn't going to go viral, you have to find other ways of attracting attention-and investment-to your campaign, which is an uphill battle in a packed crowdsourcing field. Most companies don't have the kind of inspirational product that is likely to go viral on one of these sites. If this option seems too good to be true, that's because in many cases it is. Many high-profile products have drawn headlines for launching this way, such as Pebble smartwatches and The Micro 3D printer, which blew past its $50,000 funding goal to raise more than $3 million. With enough microinvestors contributing, business owners may be able to amass enough funding to make a go of it. Business owners can post their ideas on a site like Kickstarter or GoFundMe to get individual investors to give them small amounts of money in exchange for benefits such as being first in line for the product, or promises of gifts or other benefits. How crowdfunding worksĬrowdfunding is a very promising prospect for those who have an excellent and eye-catching business idea. As with bank loans, however, the terms you get for your loan will depend on various factors, including your credit score. The flip side of the speed and ease of these loans is that their interest rates are often high-some can reach upwards of 50% APR. Once a borrower is approved, the lender sends money directly to their bank. Prospective borrowers fill out an online application form, which is followed up with a request for further information and perhaps a phone call. Some of these lenders work with those who have less-than-stellar credit. Online funding is often extremely fast-you can sometimes get a business loan the same day you apply. These companies usually have no brick-and-mortar presence, and in many cases lend to business owners without so much as a phone call. Other options may seem like excellent avenues to pursue but come with hidden dangers or drawbacks.Ĭheck out whether the following funding options may be a fit for you.Īlternative online loans and lines of creditĪ growing ecosystem of online funders is competing with traditional banks in both personal and business lending. ![]() Many of these options come with very high costs, so they may not be worth pursuing except in specific situations. The trick to vetting unconventional funding options is to do your research and run your numbers. ![]() Alternative funding options can give businesses in growth mode access to capital when they need it most. Small businesses have numerous funding options, but some of the most conventional ones-like bank loans and lines of credit-aren't always available or desirable. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law. This portion of the site is for informational purposes only. ![]()
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