Guest post by Sara Mackey

In today’s tough economy, it can be difficult for a business to obtain the financing they need for start up costs or for expanding their current business. Alternative business financing options can provide the business the funds they need in non-traditional ways. Here are four alternative business financing options that can turn the “no” from a bank into cash for your business.

Angel Investors

Angel investors are typically private affluent entrepreneurs who use their personal funds to invest in businesses. They provide the necessary financing in exchange for equity ownership. In general, angel investors invest in industries they are familiar with and have either worked in or invested in previously. They bring a valuable voice of experience and an already established network that can give your business an edge against your bank-funded competition. According to recent statistics, approximately 2/3 of new business funding is obtained through angel investors.

Venture Capitalists

Venture capitalists are similar to angel investors, but rather than investing their own money, they invest from a pool of funds from their clients. Typically, venture capitalists fund large projects that require substantial financing. They also tend to stick with high-risk/high-reward opportunities. They provide financing in exchange for stocks or shares of your business and once your business reaches a certain size and market value, they liquidate their stocks. Venture capitalist funding is not a loan that needs to be repaid rather they receive their cash when your business goes public or when it is acquired by another company.

Crowd Sourcing

The term crowd sourcing has been around since 2006, but the concept has only recently started to grow in popularity. One way to improve your chances of obtaining the business capital you need is through peer to peer (P2P) lending or crowd sourcing. P2P lending is financing you receive from the average person in small increments until you have the total amount needed. There are websites dedicated to hooking up potential business owners with potential lenders. Crowd sourcing works in similar ways and allows you to obtain the funding you need from multiple sources in exchange for an offered benefit from you to the lender. It can be shares in the company, free products or services or some other mutually agreeable perk. There are many crowd sourcing sites available online.

Bootstrapping

Bootstrapping refers to a business that starts up with no external help. It is solely financed by their own personal funds and if done correctly, can allow you to retain sole ownership of your business, provide more freedom and flexibility and make your business more appealing for future investors. Bootstrapping your business also forces you to focus solely on pleasing your customer rather than worrying about your angel or venture capitalist investor’s demands. When a business is financed and depends on personal funds and cash flow generated by the business, there is a more concentrated effort to succeed. It is more difficult to lose your own funds rather than the funds from strangers you have never met.

Sara Mackey works for Connexx.com, an authoritative guide in the field of small business finance. She has worked in small business financing for nearly a decade.

Hey everyone.

I hope that you and your businesses are having a good 2012 so far.

I wanted to give you a bit of a heads up about the site, and some news about upcoming posts.

The Site

After a really terrible personal tragedy struck my family at the beginning of the year, I realized that I needed to simplify things in my business. Part of that is obviously this site.

As a geek, I have always spent a great deal of time tinkering with things. This is a great source of fun for me, but it’s terrible for productivity. This site is no exception to the rule. As you can probably tell, this site is currently based on WordPress. The great thing about WP is also the terrible thing about WP. There are endless themes, plugins, and tweaks that can be done to customize a WP site. If I had a lick of design talent, this would be a very powerful asset. However, in my case, it’s just another time sink. I can’t tell you how many times I’ve spent a good chunk of my Saturday afternoons pouring over new themes I could use, new plugins to make it easier to share content with {insert social media site here}. In the end, I don’t think any of that time was used effectively. I’d rather just sit in front of a text editor and crank out a few posts instead.

So, at some point in the near future, I’ll be switching this site over to Squarespace. Although it’s also a very powerful platform, where design or code savvy people can bend it to their will, it’s also great as-is. I think it will force me to spend more time writing, and less time tracking down widgets and installing updates.

I’m also happy to announce that I’m moving the domain away from GoDaddy. The allure of buying whatever domain popped into my head for a few bucks drew me into GoDaddy in the beginning. However, the nauseating ads and the equally nauseating CEO finally pushed me over the edge. Whenever I get the site moved over to Squarespace, I’ll also be transferring the domain over to hover.com. I’ve already moved every other domain I own over there, but I just wanted to be extra careful with this one.

Why am I telling you all this?

Just to give you a heads up, in case I do something stupid and the site is down at any point. Hopefully things will go smoothly, but if you head over here one morning and things are missing, don’t freak out. I’m not gone…I just pushed the wrong button by mistake.

Other Updates

I’m in need of a new computer. My Dell Studio 15 likes to shut off once a day at random times for no good reason. I have a feeling the heatsink on the CPU is slightly detached, which is causing it to overheat. Whatever the cause, having a work computer do that in the middle of an important project is a big pain. Plus, it’s over 2 years old now, and is having a hard time keeping up with the myriad of tabs and apps that I have running 24/7.

I’m 95% sure that I’m going to do the big switch to a Mac. Continuing with my desire to simplify my life, I’m just too busy to be tinkering around with fussy Windows PC’s on a daily basis. This is the 2nd Dell laptop in a row…both have become plagued with problems shortly after the warranty expired. As you may remember, I also tried to do an experiment with bookkeeping on Linux. I absolutely love working with Ubuntu, but it’s just not well suited for my line of work. And, once again, it became a real time sink, which I want to avoid this year.

When I looked at the shelf behind my desk, and saw the giant stack of iOS-based products that I’ve bought (and loved) over the years, I realized that Apple products have always “just worked”.

Anyway, all that means to the site is that I’m looking forward to writing about bookkeeping on a Mac. I don’t think it’s a field that gets a lot of attention, so maybe I can add something to the space.

Newsletter

I was recently approached to write a guest post for VirtualAssistants.com. The post ended up as a part of their most recent newsletter. You can check out the newsletter here. A big thanks to Belinda over at the site, who was absolutely great to work with.

Guest Post

On Tuesday next week, there will be another guest post on this site. Sara Mackey over at  Connexx.com wrote a great post about ways to finance your business. I think it will be good information for any of you who are looking for outside funding.

I hope you all have a great weekend. If you’re reading this in Canada, don’t forget that your kids will probably be home next week. If you work from home, this means you won’t get much done. So, instead of fighting it, make sure to unplug a bit more than normal, and enjoy the company. Or, if you’re a jerk like me…enjoy the fact that you’ll have unpaid interns at your disposal for the mundane office tasks you usually loathe.

You can thank me later.

When I was a kid, banking was pretty basic. I’d grab my passbook, hop in the car with my parents, and head down to the branch. Once there, I’d fill out a withdrawal slip and wait in line. A few minutes later, I’d have enough cash in hand for a few trips to 7-11, and a new entry in my passbook. I could take out as much or as little as I wanted, and in any crazy denomination I requested.

Sometime in my teenage years, ATM’s and debit cards became popular. How convenient! Instead of going into the branch, I could drive through and get my 7-11 money. Unfortunately, it was soon after that the arbitrary restrictions began. Suddenly, there was only one bank left in town that would dispense anything smaller than a $20. Ironically, it seemed like I always had about $17 in my account. If it was late at night, and I really needed $20, I would find myself depositing $5 just so I could get back a full $20.

From those times back in the 90’s until now, a lot has changed. We’ve been told it’s for the better. Some of it I do understand. Cheques became obsolete in personal shopping due to fraud. The other thing that fraud did was limit how much money we could get out of an ATM, especially after making a deposit. Now, I don’t think I really tested the limits of this as a teenager, but I know that anything I deposited into my account at an ATM was immediately available. After x amount of people deposited an empty envelope into the ATM and pulled out $1000, they decided that this needed to be fixed. Now, at the banks that allow it, you can usually get about $200 back from what you deposit. The rest gets held for 7-10 business days.

The reason I’m writing all of this is because the limitations have become very frustrating to me recently.

As you can imagine, a big chunk of my day revolves around the banking system. I am constantly monitoring bank accounts for deposits and cheques clearing. The other thing I need to do a lot of is move money from one account to another. There are many reasons for this. Sometimes I need to move money from a chequing account to a credit card. Sometimes it’s money between accounts at different banks. Other times it’s making direct payments to vendors and staff, usually via email money transfers (or e-transfers as they’re now called). Over the past year this has become more and more difficult to pull off, and it’s taking up far too much of my day, simply because of arbitrary policies.

I’ll give you one example to illustrate my point. I’ve got a credit card at Bank A. I need to get money onto the card to pay a vendor. I’ve got money in a chequing account at Bank B. Let’s say the amount is $3000 that needs to go onto the credit card. Of the banks I’ve ever used, only 1 will let me move $3000 via e-transfer. It’s not Banks A or B. And, the banks that let you money $1000 or $2000 per day usually have a $7000-10000 monthly limit. This is just fine for most personal accounts, but completely useless in most product-reliant small businesses. And, this is a head office, written in stone policy. This isn’t like a credit limit on a Visa. You can’t talk to your branch and have them raise the limit. Trust me, I’ve tried. If Bank A has a limit of $7000 on monthly e-transfers, then that’s what it’s going to be.

Fine.

I’ll go down to the branch, get a draft for $3000 from Bank B, and deposit it into Bank A. A waste of 1 hour of my day, and $6.50. Guess what? Due to recent fraud worries, all banks in Canada treat a bank draft (you know, the guaranteed funds you pay an extra $6.50 to obtain) as a cheque, and now hold those funds for at least 5 business days.

What?

So, guess what my only option is now? Yep. I have to withdraw $3000 in cash…in front of a huge crowd of people, and then walk that money a few blocks away and deposit it into Bank A. I don’t think I have to tell you the risk of doing this, not to mention the looks I get from the bank employees for withdrawing large sums of cash.

Can I take it one step further for you? In some banks that I have to deal with, I can’t transfer money from a biz account to a personal account online. I can’t do it by linking the accounts…not by setting them up as a payee…nothing. So, if I wanted to move money from a chequing account to the credit card…in the same bank…I still have to go down to the branch and do it in person.

Don’t get me wrong, on some level I understand. If someone hacks your account, or some employee you just fired gets down to the bank before you’ve had their name removed, they can do less damage with these restraints in place. But once again, for the 99% of businesses that don’t encounter or cause this type of theft, it’s just a huge pain in the butt.

In another post, I’ll explain why these frequent trips to the branch can actually do some good. Until then, I’ll leave you with a simple plea to the Canadian banks.

I understand fraud is very real. If my account was cleaned out, I’d be devastated. But…setup a system with 2 simple rules.

1. Make it hard for anyone other than me to alter my account. Give me an electronic token, force me to use 20 character passwords…whatever. I’ll live with that.

2. Once you have proven that it’s me…let me do whatever I want with my money.

There we go…simple enough, eh?