W EEKLY EDITION JUNE 21, 2017
Financing Your Busines s … continued
(Based on a Dun and Bradstreet article entitled "Alternative Loans for Business." The full text and additional
information can be found online here http://accesstocapital.com/resources/alternative - loans - business/ )
For business owners, the big differenc e with factors is payment times — instead of waiting 30 - to - 60 days to get paid by
customers, small business owners get access to cash within 48 hours, by opting for the factoring route. As with MCA's,
interest rates linked to factoring are generally higher than bank loans. Still, factoring is proving popular with
businesses. The Wall Street Journal estimates the size of the factoring market is in the billions, although much of those
assets are tied to specific industries, like trucking, retail, constructi on, and health care.
• Crowdfunding
Going the crowdfunding route is another increasingly viable and popular option for small business owners seeking
alternative forms of financing. With crowdfunding, business owners shouldn't expect big chunks of money co ming via
crowdfunding – the average "donation" is only $88 . But if you get enough donations of $50, $100, or $150, the funds
can add up. Unlike peer - to - peer lending, you don't have to pay the money back in a literal sense in a crowdfunding
campaign (companies reward donors with perks and company swag, in many instances). Donors who give are
passionate about the business idea and want to see it get off the ground for myriad reasons. But wi th some platforms,
if the crowdfunding campaign doesn't reach a predetermined financial goal, all bets are off, and the monies are
returned to the original donors, a result that about 50% of crowdfunding participants experience.
The most successful crowdfunding timelines are between 30 and 39 days . Any less, and you're not reaching maximum
asset volume potential. Any more, and you're risking oversatura ting the market and running, fairly or unfairly, a stale
funding campaign. Kickstarter (almost $2 billion raised since 2009) and Indiegogo (over $5 00 billion) are two popular
crowdfunding sites used by entrepreneurs, but for a complete list, check here .
As of May 16, 2016, equity crowdfunding is open to the pub lic, as opposed to just accredited investors. Learn more
about equity crowdfunding or check out sites like Crowdfunder to get started. For more information, Crowdfunder's
CEO, Chance Barnett, helped explain the relatively new funding source in this podcast .
• Revenue - Ba sed Loans
What if small business owners could raise capital by promising investors a future, set percentage of revenues? That's
the promise behind revenue - based loans . Ba sically, revenue - based financing (RBF) is a hybrid financing method that
fills a need in the growth capital market for companies with approximately $1 to $10 million in revenue and a proven
plan for growth, according to Lighter Capital (formerly RevenueLoan), a leading funding provider in the RBF sector.
How does it work? Here's how Lighter Capital describes it on Startup Owl :
"Instead of requiring a business to pay a fixed amount and over a
fixed amount of time (i .e. think of your typical bank loan), an RBF
investment receives a fixed percentage of gross revenues, up to
some n egotiated "cap" (anywhere from 1.25x for a short term, on
up, depending on the needs of the company, and the timeframe
and risk factors)."
Does your small business qualify? RBF investors usually look for
companies with revenue run rate of $1 million or more; gross
margins of 50% or higher; a s olid plan for use of funds with a
near - term return, and who are seeking $100k to $500k in funding
immediately.
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