Nontraditional Business Funding
Although many businesses start with traditional sources of funding such as bank loans, some entrepreneurs are either unable or unwilling to borrow from mainstream sources. Like virtually every other aspect of starting a business, an entrepreneur's willingness to find nontraditional sources of funding is limited only by his imagination.
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Personal Loans
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If you have friends and family who believe in you and in your business concept, you may be able to convince someone to lend you money to start your company. A personal loan tends to have less-stringent criteria and lower interest rates than a traditional bank loan because the person lending you the money already knows you and has a personal investment in your success, simply by virtue of caring about you. But when taking out a personal loan to start a business, you run the risk of complicating personal relationships if you are unable to repay.
Bootstrapping
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Many small businesses do not use any outside sources of funding at all, but rather finance all business activities through available cash. Bootstrapping can expand your company's flexibility by enabling it to grow at a natural sustainable pace and keeping it free from expensive loan and interest payments. But bootstrapping can also limit your company's potential by forcing you restrict spending to match the revenue that you are earning.
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Customer Prepayments
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Some small businesses finance start-up investments and growth by enlisting the financial help of customers willing to prepay for future goods and services. This type of arrangement is most likely to work in a situation where a company has close ties with its customers, such as a food co-op or a company that provides a unique product or service that draws a passionate clientele. It usually involves offering deep discounts on goods and services provided to customers who commit themselves financially.
Barter
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Bartering is the process of exchanging goods and services rather than cash for other goods and services. Bartering can be an important tool for arranging nontraditional business funding because it enables an entrepreneur to use a medium of exchange that costs less than cash. For example, if a restaurant owner exchanges meals for landscaping services, the food she offers in payment may cost her $200 but has a $400 retail value. She will most likely barter it at its retail value, saving money and eliminating the need for a cash investment.
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