How to Raise Capital Without a Bank LoanA small business owner and a lending expert share alternative ways to finance your business without using a traditional bank.
For many small business owners, bank financing is simply not an option. Isaiah Stanback, Super Bowl XLVI champion and co-owner of Steadfast Fitness & Performance, knows this all too well.
Rejected by nearly a dozen banks, Stanback finally secured funding through LeaseQ, an online marketplace connecting businesses, equipment dealers and leasing companies. Below, Stanbeck and LeaseQ co-founder Vernon Tirey outline a few ways to get funding without using a bank.
For any small business owner, there comes a point when you can’t and shouldn’t reach into your own pockets anymore.
“The more you speak with people who are successful in business, the more you realize no one uses their own funds and resources exclusively,” Stanback said. “It may be difficult at times. I had to really fight with myself because I hate asking for things, but seeking financing to expand your business is a savvy and smart decision.”
Have a game plan
“Ex-pro athlete or not, if you know you’re going to need financing for your business, project out a year in advance from whenever the start of your search might be. Then during that year, take care of your credit,” Stanback said.
Banks typically only look at one or two factors, and bad credit could come back to haunt you.
Don’t let banks injure your credit
As you embark on your financing search, every institution will want to run a credit report. This process can hurt your credit rating.
“Don’t allow banks to run your credit unless they can pre-approve you in some form or fashion, and provide your own comprehensive credit bureau report whenever possible,” Stanback said.
Stanback’s search led him to Tirey, and with Tirey’s help he realized his dream of opening a business.
Tirey offers this advice for finding the best funding for your small business: The easiest way to find funding in your field is to use a finance marketplace that will match you with only pre-qualified lenders.
“When Isaiah came looking for equipment financing, we only gave him instant quotes from lenders that finance fitness equipment for startups,” Tirey said.
According to Tirey, all sources of financing fall into a few categories:
This category includes banks, credit unions and savings and loans. Their requirements for approval often leave small business owners or new business out in the cold, according to Tirey.
Online lenders like OnDeck, Quick Bridge and Kabbage fall into this category. Although the biggest lenders offer merchant cash advance (cash flow) loans, other specialty lenders provide additional options such as:
- Factoring and Line of Credit (LOC) loans
- Asset-based loans
- Personal loans
- SBA loans
- 401(k) loans
- Business credit card loans
- Term loans
- Equipment financing
Examples of these include Prosper and Fundera, and they’re becoming a staple for small businesses that need access to credit. Peer-to-peer lending, or P2P, can offer lower rates as the funding comes not from a central source but rather a large group of investors.
This category includes companies such as LeaseQ and Lendio. These lenders typically provide equipment loans or leases, term loans or merchant cash advance (cash flow) loans.
Examples of this type include venture capitalists, private equity and hedge funds.
Friends and family
There are often more resources available and nearby than you realize.
When looking for alternative sources of financing, Tirey said brokers can be helpful. “However, when working with brokers, you should always ask what the broker fee is, and never pay earnest money,” Tirey said. “Good lenders will send you a contract to sign before you have to make a payment.”