5 Business-Funding ‘Rules’ to Break

Securing funding for a startup business is undeniably tricky, but alternative methods give today’s entrepreneurs more options than ever before. Most businesses haven’t really kept pace with the new options. Let’s bust some of those antiquated roadblocks and look at the reality of new options.

1. Startups are too risky.
The recession burned many investors. In the aftermath, lenders who previously had thrown money at every business opportunity grew understandably cautious. More important, alternative lenders offer different options and often are more willing than traditional banks when it comes to taking risks.

Related: 4 Ways Small Businesses Can Use Large-Business Fundraising Tactics

2. Your credit must be spotless.
While lower credit scores could hurt your chances with some lenders, there are so many to choose from that you should be able to find funding as long as you present the framework for a business plan. Venture capitalists and crowdfunding lenders often are more interested in your idea than your financial history. Many alternative lenders will make a decision based on recent business history, even if your credit is less than stellar.

Related: Brittany Castro: Schedule a Date for You and Your Money

3. All online lenders are scams.
Today’s online lenders have lower overhead and sophisticated software. Fintech offers advantages such as online applications and the freedom to submit information to many lenders at once. A fair share of small-business owners may find they have better odds of approval with an online lender.

It’s important to know exactly what you’re getting into with an online lender. Before you sign up, compare loans, check lenders’ reputations, and read all the fine print. If your poor credit score results in an astronomical interest rate, make sure there’s no early-repayment penalty.

Related: Will Fintech Kill Traditional Banking or Simply Help It Reinvent Itself?

4. You must have a solid business plan.
It depends. Investors and traditional banks still want to see a business plan, but alternative lenders simply need evidence you can pay back the loan. You should be able to find funding if your cash flow is steady.

Related: 8 Financial Tips for Entrepreneurs Launching a Startup

5. Don’t ask for too much.
There’s a persistent myth that lenders don’t want to risk too much on a small-business loan. To be effective, you need to ask for what you need. Borrow only an amount you can comfortably pay back.

While lower credit scores could hurt your chances with some lenders, there are so many to choose from that you should be able to find funding as long as you present the framework for a business plan. Many alternative lenders will make a decision based on recent business history, even if your credit is less than stellar. Investors and traditional banks still want to see a business plan, but alternative lenders simply need evidence you can pay back the loan.

AppsFunder matches app developers and investors. An expert panel of judges scores each app on the basis of innovation, technology, business potential and team. Apps that score greater than 70 percent receive a AAA Certified label, which makes funding more likely.

CircleUp is place where consumer and retail companies can connect with investors. Private-equity professionals evaluate each company before it’s listed on the platform. CircleUp is a licensed FINRA broker dealer.

Hip new stuff across a variety of categories does exceptionally well on Kickstarter and Indiegogo, while GoFundMe targets personal funding. If you’re looking for more of a niche market within crowdfunding, you’ll also find several industry-specific sites.

MacroCrowd allows many investors to crowdfund large real-estate development projects with very little risk. MacroCrowd uses reputable FINRA broker dealers and adheres to strict SEC regulations when accepting investments.

A new kind of social capital: crowdfunding.
No summary of alternative financing methods would be complete without a discussion on crowdfunding. It’s largely a matter of how many people you reach, how much appeal your product has and how interesting your pitch is.

In the aftermath, lenders who previously had thrown money at every business opportunity grew understandably cautious. More important, alternative lenders offer different options and often are more willing than traditional banks when it comes to taking risks.

In turn, these investors receive perks such as discounts and behind-the-scenes food truck tours. Food Start partnered with BoeFly to help connect food truck owners to more traditional lenders.

RocketHub provides funding for art, science, education, business and social good projects. This community of like-minded entrepreneurs enables users to share their success stories as a way to help inspire others. The company also has partnered with Bankroll Ventures to create the ELEQUITY funding platform to help entrepreneurs get the funding they need.

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