Alternative Methods For Small Business Funding

  • December 16th, 2013
  • Dave Landry Jr

Businessman on PhoneAs entrepreneurs attempt to launch their businesses, the biggest obstacle in most cases is funding. Funding will directly make or break your business and can be a constant source of concern for anyone trying to start a business. The traditional methods of acquiring funding can be very effective, yet can be very infeasible or difficult to access in today’s ultra competitive business environment. Fortunately for today’s business builders, however, there are new and alternative ways to acquire funding that should not be ignored.

Alternative methods of funding worth noting really revolve around interacting with the most people via web communication and include crowdfunding and social media. These are particularly popular because people are increasingly becoming more dependant on their friends for information rather than advertising, and these are channels of communication where one can reach a great number of friends or even like-minded strangers at a time.

Crowdfunding

Crowdfunding is an incredibly accessible way for entrepreneurs to acquire funding because anyone can set up an online account and it can be accessed by anyone. Popular crowdfunding sites include Kickstarter.com and Indiegogo.com, and upon completion of setting up your account, you can advertise it via any social media stream so your acquatintences can contribute financially as well as attract browsers of the website to do the same. People are willing to donate because either they support the person or business campaigning, or else there is a reward or “perk” given to contributors. Crowdfunding is very popular because of its accessibility, but it’s biggest detriment is it’s relatively low success rate at 44%, and 25% of prospective projects are rejected. Also, this method is gaining notoriety rapidly and it seems crowdfunding websites are almost at full capacity, with an influx of projects to choose from outgrowing the amount of investors. Beddit, a company producing a sleep wellness-tracking device, successfully raised north of $500 thousand via indiegogo.com, demonstrating the potential of crowdfunding.

Social Media

Fundraising through social media is also very popular as it is a medium used practically worldwide. There are many methods of raising funds through social media, and they essentially exist in any way that you are able to spread your message to the masses. Most commonly, people will set up a ‘Causes’ page on Facebook, send out mass e-mails, make a short video on Youtube, or else send out tweets on Twitter. These are all free (disregarding internet and device costs) ways to promote your cause and raise awareness of your financial needs. The goal is to be as interactive as possible, making or building on relationships with your audience which is the key difference between this and traditional advertising. If you choose to go this route, it is very important to stay on top of your social media streams and engage as much as possible. Social media is saturated with information and nonsense, meaning that it is very easy for your audience to look over your promotions. Finding a niche way to place your ads on Facebook, or even opening an Instagram account for your company, following like-minded companies and interacting with their followers is a great way to get started.

Traditional methods of acquiring funds are very different from the aforementioned methods and include, but are not limited to, borrowing from family/friends, “bootstrapping” and pulling from savings, bank loans, and seeking investors by offering up company equity. These methods all have their potential for success, although they come with varying degrees of risk. Borrowing from friends can create relationship strains or else just welcome too many opinions for the business. Finding an investor is still a very popular sought after method of funding a business, however it is likely the most difficult method as well since investors are few and entrepreneurs are many. Also, the average entrepreneur is in their 40’s, meaning that many of them have families and other responsibilities to maintain. This makes it especially difficult for many entrepreneurs to justify taking on more debt or emptying their savings accounts to chase their dream.

Although traditional methods of acquiring funds are still necessary with a few exceptions, they are only benefitted by using new and alternative methods in conjunction with them. Most people are averse to the idea of digging themselves into a massive debt hole and then trying to climb their way out through their burgeoning business. With the help of crowdfunding and social media, entrepreneurs can mitigate their debt hole by getting debt-free financial assistance as well as create new customers by sharing their brand.

About the Author

  • Dave Landry Jr
  • Dave Landry Jr

Dave Landry Jr. is a personal finance consultant and small business owner located in Southern California who enjoys blogging and creating infographics on all-things finance, including banking, debt management, investing, insurance, frugality and saving. You can visit the blog of Deposit Accounts to see more of Dave’s writing and reviews on bank rates, savings accounts and more. He hopes you enjoy this article and have learned a new things or two about business funding.

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