Although they might be household names now, many of the biggest companies in the country began as single-shop stores that were able to take advantage of a small business loan to grow the enterprise into nationwide chains and billion-dollar organizations. While the majority of the success stems from sound business practices and astute marketing campaigns, for many, none of it would be possible without the additional help from an outside financing company.
Many small businesses, especially those with razor-thin profit margins, are unable to grow without outside funding. Despite covering all the operational costs, small business owners can find themselves unable to purchase new inventory, hire additional workers or engage in more expansive marketing strategies unless they have access to working capital sources.
Familiar companies like Domino’s, Chipotle and Ben & Jerry’s all received their first big break after obtaining some sort of external financing. It was only after they received these investments that the owners and CEOs were able to truly become the corporate juggernauts they are today. We’ve highlighted some of the companies that have grown from small loans to big businesses in our latest infographic.
Continued rise of alternative financing
With the U.S. Federal Reserve recently hiking its benchmark short-term interest rate for the first time in nearly a decade, business owners will have to deal with the possibility of an increase in the cost of capital, according to Forbes contributor Amy Feldman. However, despite this potential obstacle to cheap money, NerdWallet is one source forecasting big strides for small business financing in 2016, with more options, more money available and more minority-owned companies popping up next year.
“Small-business owners, who fuel the U.S. economy, deserve more and better access to financing and other resources to help them thrive,” said Cindy Yang, NerdWallet’s small business expert. “Of all the changes in store for small-business owners, I believe access to capital is the most impactful.”
Fortunately, according to the website’s projections, there will be greater opportunities for small businesses to gain the crucial funding necessary to expand operations and capture a larger slice of market share. As NerdWallet reported, online lending is expected to account for 16 percent of all small business loans, up from the 2 percent currently.
In addition, the number of female entrepreneurs seeking financing will also continue to grow. As NerdWallet noted, women-owned businesses increased from 29 percent of the total ownership in 2007, to 36 percent in 2012. If this trend continues at its current pace, then women-owned businesses will account for roughly 43 percent of all businesses in 2016 and half by 2020. With so many new female-owned businesses likely to pop up in the coming years, they will need to take advantage of the many benefits offered through alternative financing options.
Obtaining alternative financing
Other than personal savings or a loan from friends and family members, in the past, small business owners only had one option for accessing the capital necessary to grow their organizations, traditional banks. These banks typically require business loan applicants to provide an extensive amount of information, including past financial statements, a detailed business plan and carefully researched projections for how the loan will be used. In addition to the unwieldy amount of aggregated information required for the application, traditional lenders will also factor in the credit history of the owner, business or both. The sheer volume of data to compile and hand over can make seeking out a loan from a traditional lender an expensive, time-consuming process.
Luckily, obtaining alternative financing has never been easier or faster for small business owners. Owners seeking out funding from most online lenders and other providers of alternative business financing will find that this is a great route.
Not only can an alternative financing solution cover up to $500,000 in available funding, but in most instances businesses can get this money in as little as 24 hours. This alleviates the worries and frustrations that can accompany trying to make payroll or replacing a vital piece of equipment in a hurry. Further, even those owners or companies with poor or no credit histories can still qualify for a small business loan with many alternative lenders.
Usually, if a loan applicant does not have the requisite credit history or fails to meet one of the other extremely high bars established by traditional lenders, many will require an entrepreneur to put up some sort of collateral to cover the loan, such as a car or a home. Fortunately, many alternative lenders provide unsecured business loans to assist owners who might not have the appropriate collateral.
Business owners can take advantage of alternative financing sources to increase or replace inventory, upgrade technology, consolidate debt, boost marketing strategies or even pay off outstanding taxes. Whatever the purpose, alternative financing provides the vital injection of capital when companies need it the most.