4 Small-Business Financing Options You’ve Probably Never Heard Of

Financing is one of the great conundrums of entrepreneurship: For the first few years, your small business’s income may be uncertain and its credit unestablished, yet you need to invest in inventory, facilities, and staff to establish a solid presence and a revenue stream.

Finding a traditional lender who will essentially take a chance on your company can be tough. So, many startups are turning to alternative financing options, such as peer-to-peer lending and online pawn shops.

Did you know that other sources of capital are available, too? Here are four small-business financing options that you’ve probably never of.

Kabbage

Are you an online seller (through Amazon, eBay, Etsy, Shopify, or Yahoo) who needs cash to purchase inventory? Kabbage may help you score a six-month advance of $500 to $50,000 in fewer than seven minutes. Kabbage determines whether you qualify for its merchant advances based on your social media popularity, reputation on e-commerce sites, and analytics from vendors you use to run your business (including Intuit QuickBooks Online).

The more Kabbage can verify what your shop is all about, the better your chances of securing funding. Because the money is a “merchant advance” and not a loan, there aren’t any interest rates. But you should expect to repay what you are advanced in equal monthly transfers, plus 2 to 7 percent of that amount, based on your “Kabbage score” and revenue, until the amount you borrowed is repaid in full.

Guidant’s iFinance

Guidant Financial’s iFinance provides a means for small-business owners to use their tax-deferred retirement savings for startup investments, while eliminating some of the penalties that accompany early withdrawals. This “rollover as business startup” funding may be used for activities such as buying a franchise, building a storefront, or purchasing equipment.

Because you’re using your own money to invest into your own business (vs. taking out a loan), you won’t pay any interest. However, you do risk losing your retirement savings if your business doesn’t perform as expected. To facilitate the complex transition, which takes about a month to complete, Guidant establishes a corporation for the small business and a 401(k) account for it. Once that’s done, Guidant rolls your existing retirement assets into the account, essentially making the 401(k) a shareholder in your business.

On Deck Capital

If your small business has logged at least a year’s worth of revenue, On Deck Capital uses your company’s cash flow and positive payment history — vs. a credit score — to determine its loan-worthiness. With an online application process that takes about 15 minutes to complete, On Deck offers loans with repayment terms ranging from three to 18 months, and it can fund loans of less than $25,000 in about an hour.

Although the loan may be secured with a lien on your business assets, repayment takes place daily via an automatic transfer in fixed amounts. Because positive repayment of On Deck loans are reported to the credit bureaus, borrowing can help you establish a business credit history.

Upstart

If you know you’re capable of great entrepreneurial achievements, but need investors to fund your “big break,” Upstart — a crowdfunding platform founded by ex-Googlers — could be the answer. Though you can ask for funding based on a specific business idea, Upstart is founded on the idea of investing in a person’s potential; investors each contribute small amounts to provide a person with the capital and mentoring he or she needs to make future goals reality.

In return for funding, an individual shares a small portion of his or her personal income for 10 years. For example, Trina Spear, a Tufts University and Harvard Business School grad, secured $20,000 and mentorship through Upstart to co-found a medical apparel company, FIGS Scrubs. In exchange, she’ll repay the loan with 1 percent of her pre-tax income over the next decade. She intends to use the money to pay her student loans while raising the $1 million venture capital money needed to fund her startup.

About Stephanie Taylor Christensen

Stephanie Taylor Christensen holds a master’s degree in marketing and has 13 years of marketing management experience for Fortune 500 companies and small businesses. She is a regular contributor to sites like ForbesWoman, Real Simple, Mint, Minyanville, and SheKnows, and writes for several private business clients. Her work is frequently syndicated and sourced by Yahoo! Finance, SFGate, TodayShow.com, and The New York Times. She is also a small business owner, having founded WellnessOnLess.com, and Om for Mom Prenatal Yoga in Columbus, Ohio. Connect with her on Twitter @WellnessOnLess.
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4 comments
Speed fund llc
Speed fund llc

Hi Ken im sorry to hear what happened to you.  Times are hard for every one these days  banks are not lending small business  as they were in the past. A Merchant cash advance may help you. if you would like to know more feel free to contact me. www.merchantcashadvancecarolina.com


kennneth watts
kennneth watts

the business i own has been here for 16 yrs. i have owned it for 16 months. in the middle of this i was robbed depleting all inventory . I have restocked and ready to expand. But because i showed a lose last yr nobody seems interested.even though I am still a float and have as much in stock as i ever had 

Ben Van Zee
Ben Van Zee

As I saw this post I was assuming I'd see the traditional alternatives to banks such as asset-based lending, factoring, equipment leasing, and merchant cash advance.

 

The interesting thing about loans from companies such as On Deck is that they actually hinder cash flow, which is something most businesses struggle with already.

 

What is going on in crowdfunding and Kabbage is extremely interesting. I look forward to seeing how their business models will evolve as the world of online business continues to progress.

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