Alternative finance for small businesses

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Raising capital

Businesses need startup capital and along the way, if they plan to expand their operations they would need an infusion of capital to do so too.

If the current stakeholders in small businesses are unable to chip in with the required finance they would need to look elsewhere to raise the needed capital.

Going to a bank for finance would generally entail some collateral acceptable to the respective institution to be deposited before a loan could be approved. Without them banks are constrained by financial regulations to lend to any business because the banks are responsible for it, hence they cannot take risks when they lend.

Read also: Revenue vs Equity Crowdfunding

Alternative funding

In such context, small businesses that are flourishing and need to expand would have to seek Alternative Finance of which there are many options that they could raise such funding from and which would be low risk for the prospective investors as well as for the small businesses themselves.

Revenue-sharing crowdfunding

If the small businesses have a wide and loyal customer base that could be one area that they could look for alternative finance and which is referred to popularly as revenue-sharing crowdfunding.

Getting together loyal customers is an integral part of the growth of smallbusinesses and raising money without loss of control by using revenue-sharing crowdfunding. Loyal customers would also tend to increase their commitment to the business by proactively engaging in purchasing what they need and even acting as silent marketing agents for the business promoting the business among their friends and other acquaintances.

The revenue share option gives flexibility to the business without the sword of Damocles hanging over it, where you commit to paying back prospective investors from the revenue that is generated from the small businesses.

In this context when the revenue is high for a particular month you pay more and when business drops you pay less and the investors are not bothered what profit you make but only concerned what the monthly revenue is because their return on investment is limited to a percentage of revenue.

This is a major advantage for small businesses as they are not under undue pressure financially to ensure that fixed monthly payments are made without default to settle the finance received in raising capital.

Profit sharing

In the case of profit sharing unlike in revenue sharing, there could be a very slight twist where you would need to disclose profit margins to the prospective investors and they would be party to confidential information that the original stakeholders would like to keep for themselves.

The other would be that the investors would be more concerned about what profit the small businesses are making rather than the business itself because their return on investment is tied to the profits generated.     

Revenue-sharing crowdfunding secures a comfortable growth base for small businesses without having to give up control over the ownership of the company. Crowdholding.com is the first revenue-sharing crowdfunding platform. 

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