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In this article, we’ll show you 7 lesser-known ways to finance your enterprise. Here they are:
Revenue-Based Financing (RBF)
- What is it? In RBF, investors provide capital in exchange for a percentage of the business’s ongoing revenue. Repayment tends to be flexible because it depends on the company’s income.
- Best for: SMEs with steady revenue streams, particularly, SaaS companies or businesses with recurring revenue models.
- Provided by: Institutional and private investors.
Crowdlending or Peer-to-Peer (P2P) Lending
- What is it? This method connects borrowers with individual lenders, sidestepping traditional banking systems. Platforms like Kiakia and Fint have gained traction in this space.
- Best for: SMEs looking for smaller loans without the hassle of bank bureaucracies.
- Provided by: Individual lenders, often through dedicated digital platforms.
Online Invoice Trading
- What is it? SMEs can sell their unpaid invoices on online platforms to investors at a discount. It provides immediate cash flow.
- Best for: Businesses with longer invoice payment terms but require immediate cash.
- Provided by: Investors.
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Supply Chain Financing
- What is it? This happens when an organization finances a supplier on their customer’s behalf.
- Best for: SMEs looking to optimize their operations and working capital about their supply chain.
- Provided by: Financial institutions (such as banks) and non-traditional financers.
Competitions and Grants
- What is it? Many organizations help small businesses with the funding they need through grant programs and competitions (as prize money, for instance). They might demand a pitch presentation or a detailed business proposal before deciding on whether or not to provide financial aid.
- Best for: startups or SMEs with innovative ideas and brilliant pitching skills and content.
- Provided by: Grant-making organizations, financial institutions, alternative financers, and other bodies
- What is it? As you may have already guessed, this is when a transaction involves the exchange of products for other products (or services), instead of purchasing with proper currency. It’s something you can do if you’re short of cash.
- Best for: SMEs willing to exchange services or products, especially beneficial during cash crunches.
- Provided by: Businesses
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Merchant Cash Advances (MCA)
- What is it? Lenders provide cash to a business based on its expected future sales. Repayments are then taken as a daily percentage of said sales.
- Best for: Retail businesses or SMEs with high volumes of credit card transactions.
- Provided by: Non-traditional financial institutions and other financers.
Final WordsBusinesses are better off if they have multiple funding types and sources to choose from. Traditional avenues will always have their place; but exploring lesser-known alternatives can often lead to more flexible, sustainable, and growth-friendly financing solutions. Just make sure to thoroughly research your options, and, if possible, consult with a financial advisor. Featured Image Source: Science
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