Have you ever built a sandcastle? If you ever went to a sandy beach, it’s a fair assumption you have. Now, imagine a tide rolling in, destroying all your hard work, and now you have to start all over. All you are left with is a soggy mess and a question: where to start?
That’s how it feels for small businesses to bounce back from a crisis. Whether it’s a natural disaster, a supply chain meltdown, or an economic downturn, usually it’s the small businesses that bear the brunt.
The good news is that the financing options are evolving, Here are some financing strategies that can help your business back on track. No selling of soul is required.
1. Crowdfunding: Turn Your Customers into Investors
You probably heard of that old saying “If you need help, ask”. Sounds simple, right? Well, that’s why it works.
Kickstarter, GoFundMe, Indie GoGo, and other crowdfunding platforms allow you, a small business owner, to pitch your rebuilding plans to the public. Unlike traditional loans, crowdfunding lets you collect funds from multiple backers who believe in your business.
And the best part? You don’t always need to pay the money back. Crowdfunding campaigns usually offer rewards or products instead of equity or payment. A bakery rebuilding after a fire could offer free cookies for a year to donors, securing funding and building a loyal customer base at the same time.
If you decide for the crowdfunding option, keep your campaign personal and heartfelt. Share your story, be honest, and don’t skimp on the visuals. Nobody wants to fund a business owner who looks like they’re auditioning for a crime drama.
2. Microloans: Small Loans, Big Impact
“Microloan” sounds like something rather small. And, to be fair, it is. They are perfect if your business needs a financial nudge rather than a full-on shove.
There are organizations like Kiva or Accion that specialize in small-dollar loans with low interest rates, perfect for businesses in underserved communities or those lacking strong credit histories.
While microloans won’t fund some massive projects, they can help you address critical needs that would allow your business to operate again. For example, imagine you are a florist and your store got flooded. A microloan could cover the cost of new refrigeration units and inventory.
Use microloans only for tangible, immediate needs. Not only it will help you, but the lenders like to see their money put to work, not parked in your business account.
3. Revenue-Based Financing: Sharing the Ups and Downs
Revenue-based financing (RBF) is exactly what its name suggests. Instead of fixed monthly payments, you repay a percentage of your monthly revenue. This means you don’t have to worry during the slower months, since this option adjusts to your cash flow.
RBF is like having a helpful friend who adjusts their expectations based on your mood. This type of financing suits businesses with predictable revenue streams, like subscription services or e-commerce shops.
Fintech companies like Clearco or Lighter Capital often offer RBF. Keep detailed revenue records to qualify. Transparency builds trust and ensures you don’t overpromise and under-deliver.
4. Peer-to-Peer Lending: Borrowing Without Banks
Why beg banks for a loan when you can borrow directly from individuals? Peer-to-peer (P2P) lending platforms like LendingClub and Funding Circle connect borrowers and lenders, cutting out the middleman. Interest rates are competitive, and approval processes tend to be faster than traditional loans.
Let’s say you run a boutique gym and need funds to replace equipment damaged in a storm. A P2P loan could provide the money faster than waiting on insurance claims or bank approvals.
If you decide to go with this option, craft a solid pitch for potential lenders. Show them you’re a low-risk investment with high potential. And maybe toss in some humor. After all, laughter loosens wallets. But, don’t overdo it.
5. Disaster Recovery Grants: Free Money (Almost)
If your business suffered from a natural disaster, you might qualify for disaster recovery grants. These grants don’t require repayment, which makes them the holy grail of post-crisis financing. Federal agencies, local governments, and private organizations often offer these grants.
Once you secure this funding, partnering with a reputable restoration company like Belfor can ensure your money goes toward efficient, high-quality recovery efforts. They specialize in disaster recovery services like water extraction, mold remediation, and reconstruction, helping businesses minimize downtime and stretch grant dollars further.
Here’s a tip: Apply as early as possible. Grant funds disappear faster than free samples at Costco.
6. Merchant Cash Advances: Speedy Cash, at a Cost
Merchant cash advances (MCAs) are like the fast food of the financing world. Great in a pinch, but not something you want to rely on regularly.
MCAs provide quick access to funds in exchange for a percentage of future credit card sales. This option is all about speed and convenience, but the catch lies in the pretty hefty fees. In case of emergency, you can use MCAs to bridge the gap while waiting for insurance payouts.
If you opt for merchant cash advances, compare the providers carefully. Some of them charge sky-high fees, making it easy to dig a deeper financial hole.
7. Invoice Factoring: Turn Unpaid Invoices Into Cash
Invoice factoring can provide you with some cash flow when you need it the most by selling your unpaid invoices to factoring companies like BlueVine and Fundbox and turning those IOUs into immediate cash. The factoring company then collects payment from your customers.
Imagine running a catering business with clients who love your food but pay you slower than molasses. Invoice factoring ensures you have cash to cover your bills while waiting for their payments.
Suggestion: Factor only invoices from reliable customers. The last thing you need is to owe money for invoices that never get paid.
8. Community Development Financial Institutions (CDFIs)
CDFIs are nonprofit organizations that focus on supporting small businesses in underserved areas. They offer loans, grants, and technical assistance to help businesses rebuild and thrive.
Because they prioritize community impact over profit, the terms they offer are often more favorable than traditional lenders. For instance, if your bookstore needs renovations after a fire, a CDFI loan could cover the costs while keeping interest rates manageable.
So, if you’re rebuilding a small business after a crisis, look for the CDFIs in your area. They often provide personalized support and understand the unique challenges of your community.
Equity crowdfunding platforms like Wefunder and StartEngine let small businesses sell shares to investors. Unlike traditional crowdfunding which we mentioned earlier, this option involves offering equity in exchange for funding, instead of cookies.
Consider this if your business has big growth potential. For example, a craft brewery expanding after a disaster could attract beer enthusiasts as investors. Who wouldn’t want to own a piece of their favorite watering hole?
If you were to go with this option, be prepared to give up some control. Investors will expect a say in how you run your business.
10. Digital Payment Advances: The Fintech Twist
Fintech companies now offer financing tied directly to your digital payment platforms. Companies like PayPal and Square provide cash advances or loans based on your transaction history. This option offers speed and flexibility, especially for businesses with a strong online presence.
Picture a clothing boutique needing funds to restock inventory after a theft. A PayPal Working Capital loan could provide immediate relief based on your sales data.
We recommend that you use this option for short-term needs. Overextending can lead to financial strain, especially if sales dip unexpectedly.
The Bottom Line
Rebuilding a small business after a crisis isn’t easy, but innovative financing options can make the process less scary. From crowdfunding campaigns to revenue-based financing, the tools are out there. Some are traditional with a modern twist, others are as new as your favorite TikTok dance trend.
The key is to match the right option with your needs. Do your homework, understand the terms, and don’t shy away from asking for help. Remember, even the most successful entrepreneurs started with a little help and a whole lot of determination.
And hey, if all else fails, there’s always the lemonade stand route. But seriously, never underestimate the power of community support and innovative thinking. After all, small businesses aren’t just businesses; they’re stories, dreams, and a whole lot of grit. So roll up your sleeves and get to work.
