Business Finance

How to Secure Funding for Your Business When Banks Say No

Starting or growing a business requires money. However, banks don’t always approve loans, especially for small or new businesses. If you’ve tried to get a loan from a bank and had no luck, you’re not alone. Many business owners face the same challenge. But just because banks say no doesn’t mean you’re out of options. Here are some practical ways to secure funding for your business when traditional banks aren’t an option.

1. Consider Alternative Lenders

Alternative lenders are companies that provide funding outside of traditional banks. These can include online lenders, peer-to-peer lending platforms, and other non-bank financial institutions. They typically have fewer requirements and a quicker approval process than banks, making them an appealing option for many entrepreneurs.

Online Lenders: Companies like Kabbage, OnDeck, and LendingClub offer small business loans. They usually focus more on your business’s revenue rather than your credit score, which can increase your chances of approval.
Peer-to-Peer Lending: This is when individuals lend money to businesses through platforms like Funding Circle. These lenders are often more willing to take on risk in exchange for higher returns.

2. Tap Into Your Personal Network

When banks say no, your friends, family, and acquaintances may be your best bet. Many entrepreneurs turn to their personal network for funding. While it can be awkward, borrowing from people you trust can give you the capital you need without the burden of high-interest rates or lengthy approval processes.

Friends and Family: Before asking anyone for money, have a clear and detailed plan to show how you will use the funds and how you plan to repay them. Be honest about the risks and make sure both parties understand the agreement.
Business Partners: If you have a business partner or someone who shares your vision, they may be willing to invest in your idea.

3. Look Into Government Grants and Programs

The government offers various funding programs to help small businesses, especially in certain industries or locations. These programs come in the form of grants, loans, or tax credits. While the process can be competitive, it’s worth looking into.

Grants: These are essentially free money that you don’t have to pay back. However, they usually come with specific requirements, and you’ll need to show how your business fits their criteria. Examples include grants for women-owned businesses, veteran-owned businesses, or businesses that focus on innovation.
Small Business Administration (SBA): The SBA doesn’t provide direct funding, but they do guarantee loans through partner banks and lenders, which can make it easier to get approved. They also have funding programs for specific groups like veterans or minorities.

4. Crowdfunding

Crowdfunding has become a popular way to raise money for a wide range of business ventures. Platforms like Kickstarter, GoFundMe, and Indiegogo allow you to pitch your business idea to a global audience. If people believe in your idea, they may contribute money.

Rewards-Based Crowdfunding: You offer rewards (like early access to your product) to people who fund your business.
Equity Crowdfunding: Instead of rewards, backers receive equity in your company. This approach requires more legal work but could bring in larger sums of money.

Crowdfunding works best if you have a product or service that people can get excited about. A compelling pitch and a strong marketing campaign are essential for success.

5. Angel Investors

An angel investor is someone who invests their own money into your business in exchange for equity or convertible debt. These investors are usually experienced entrepreneurs or business professionals looking for promising opportunities.

Finding an Angel Investor: You can find angel investors through networks like AngelList, local investment groups, or by attending pitch events.
What They Look For: Angel investors often focus on early-stage businesses with a clear growth potential. A solid business plan, a unique idea, and a motivated team are key to attracting angel investors.

6. Venture Capitalists (VCs)

Venture capitalists are investors who provide funding in exchange for equity in high-growth businesses. VCs typically look for businesses with a proven track record, an innovative product, and a scalable business model. They also prefer industries with a lot of growth potential, like technology or healthcare.

Pros and Cons of VC Funding: While VCs can provide large amounts of funding, they usually want significant control over the business and a share in the decision-making. If you’re willing to give up some control in exchange for capital, venture capital could be a good option.
Finding a VC: You can approach VCs directly, or join an accelerator program where they are often involved. These programs can help you refine your pitch and increase your chances of securing funding.

7. Microloans

If you’re looking for smaller loans, microloans might be the right option. Microloan providers typically offer loans of up to $50,000. They focus on supporting entrepreneurs who may not qualify for traditional loans due to lack of collateral or credit history.

Where to Get Microloans: Organizations like Kiva, Accion, and the SBA’s Microloan Program provide these types of loans.
Why Microloans Work: Since the loan amounts are small and the requirements less strict, microloans can be a great choice for startups or businesses with limited resources.

8. Business Incubators and Accelerators

Business incubators and accelerators can provide funding along with mentorship, resources, and networking opportunities. These programs are designed to help businesses grow and scale by providing seed funding in exchange for equity or other benefits.

What They Offer: In addition to funding, you’ll get access to a community of mentors, investors, and peers who can offer guidance and support.
How to Join: Programs like Y Combinator, Techstars, and 500 Startups have a competitive application process. You’ll need a solid business idea and a plan for growth.

9. Consider a Line of Credit

A business line of credit works like a credit card. It provides you with access to a set amount of funds that you can use as needed. You only pay interest on the amount you borrow, which gives you flexibility and control over your cash flow.

How It Works: Unlike a traditional loan, you don’t have to use all the funds right away. You can withdraw money as needed and repay it over time.
Where to Get It: Online lenders, credit unions, and some alternative lenders offer business lines of credit.

10. Sell Equity or Shares

If you don’t want to take on debt but need capital, selling equity or shares in your company might be a good option. This means offering a portion of your business to investors in exchange for funding.

Private Equity Firms: These firms invest in businesses in exchange for equity. They typically look for businesses with high growth potential.
Public Offering: If your business is large enough, you may consider offering shares through an Initial Public Offering (IPO). This is more complex and expensive but can provide a large amount of funding.

11. Bootstrap Your Business

Bootstrapping means funding your business with your own money, usually through personal savings or income from other sources. While this can be risky, it gives you complete control over your business.

How to Bootstrap: You can save money over time, reduce your operating costs, or start your business part-time until you have enough revenue to reinvest.
When to Consider Bootstrapping: If you have limited external funding options or want to retain full ownership, bootstrapping is a viable option.

Conclusion

Securing funding when banks say no may require a little creativity, but it’s far from impossible. From exploring alternative lenders to seeking help from your personal network or turning to crowdfunding, there are plenty of ways to raise capital for your business. The key is persistence and being open to different sources of funding. Assess your business needs and determine which option is the best fit. With the right approach and mindset, you can find the funding you need to get your business off the ground.

How to Secure Funding for Your Business When Banks Say No