Starting up your own business these days is brave, exciting, and scary. It is scarier to funds for your project. Banks do not fund freelancers. As sole proprietors, startup owners have no protection against liabilities. They are responsible for repaying the loan. Most banks, in our current economic landscape, prefer to fund more established businesses. Securing a bank loan as a freelancer is almost impossible these days. You need to make investments, bridge cash flow gaps and implement your business plan. Let’s discuss today alternative funding options for freelancers!
1. Microloans from the Small Business Administration
While you can start a freelance business in under one week, getting the funds for it may require some patience. If you do not meet traditional bank loans’ criteria, a microloan could be the answer.
The S.B.A. does not lend you money. They guarantee you a percentage of your loan. Thus, they limit the risks of the lenders. As a freelancer, you might want to look at the microloan programs run by the S.B.A. In particular, check the 7(a) program. You could buy equipment for your business and market your project to your target audience.
The average S.B.A. microloans for freelancers range between $500 and $50.000. The average sum is around $10.00. However, try to stay away from getting into too much debt from the start.
2. Merchant Cash Advances from an Alternative Lender
A merchant cash advance is a popular type of loan. It provides a freelancer with cash fast. You can consider it a paycheck advance, but for businesses. An alternative lender offers you a lump sum against your future sales. You can pay the lender back in increments as you sell products or services to your customers.
Compared to a microloan obtained with the Small Business Administration, getting an M.C.A. is speedy. It can take up to a couple of business days to receive your money after you applied. Merchant Cash Advances are usually cheaper and easier to obtain than bank loans or other startup funding types.
If you want to understand how the M.C.A. process works and what you need to do to get one, you can check out allyearfunding.com. You will learn that an M.C.A. can help you bridge operational gaps in your startup. Moreover, many alternative lenders will not check out your past credit score. They will look into the potential of your business. If your business is running for at least six months, you have plenty of chances to become eligible for a Merchant Cash Advance. The most significant advantage of this loan for freelancers is that payments are affordable.
3. Invoice Factoring from Factoring Companies
If you run a B2B business, you most likely issue invoices to your customers. Those who pay late cause cash flow and disruptions. Invoice factoring means selling discounted unpaid invoices. The buyers are factoring companies or banks’ partners. That entity pays you upfront the reduced value of your accounts receivable. For freelancers, this type of funding is great if they have late-paying customers.
An alternative to invoice factoring is invoice financing. You could get funding from a lender by using your invoices as collateral. Both types of invoice-based capital are popular solutions for startups. A factoring company pays you less money than you have to receive. It is the right solution if you need a quick method to bridge the cash-flow gap.
4. Business Lines of Credit from Banks or Online Lenders
Most startup owners do not know this, but a business can get a credit line from a bank or an online lender. A business line of credit works a lot like a personal credit card. A lender gives you access to a significant amount. You can withdraw and spend the money (up to the maximum limit) whenever you need it. You only pay interest for the money you spent.
A business line of credit is the optimal choice if you need a financial cushion to land on from time to time. If you also have a revolving line of credit, you have the option of reusing the funds while you pay the balance.
Such type of loan for freelancers is a cash-on-demand type of funding. Nevertheless, you should only use it for emergencies or make quick but crucial purchases to develop your business.
5. Business Grants
Applying for a startup grant is a challenging quest. It involves a lot of work, strict application guidelines, and fierce competition. The appeal of a startup grant is that you do not have to repay any money. On the other hand, you need to meet firm criteria to become eligible.
Business grants can come from various sources: the federal government, states, corporations, nonprofits, and even individuals. Most of these grants encourage innovation technology, new product development, job creation and retention, crucial investments, etc.
Start by looking up for startup grants and stimulus ones for small companies in your state or with corporations. Facebook, Amazon, Yelp, Jack Daniels, or the National Science Foundation are famous for their grants.
Finding funding for your freelance project is a daunting job. However, you need to do it if you don’t want to pay money from your pocket. Do your research well and calculate your debts and payments before committing to any loan. If you lack experience, alternative and online lenders can be your go-to solution. No matter what you choose, make sure you can repay your loans on time! Grow your business by being smart about your investments and risks!