By Karen Axelton
Are you looking for new sources of capital for your business? If you’ve had trouble getting financing from banks, there is one other source you may want to tap into: your own customers.
With banks implementing stricter loan requirements in the wake of the economic meltdown, it’s gotten harder for small companies to obtain loans—even if they have steady business and a large and happy customer base. The good news, though, is that those same customers can potentially be a source of financing for your small business.
Customer financing has been around for a long time, but the trend has grown as other sources of funding have dried up and as consumers have become more passionate about the idea of supporting local businesses. Consumers are also more understanding about the need for businesses to seek alternative financing, meaning that business owners are less leery of admitting to their customers that they need financial help to grow.
Customer financing works best if you can offer your customers something tangible in return for their investment. For example, a restaurant could sell a $100 credit that’s good for $125 of food. It’s also important to communicate honestly and openly with customers who invest in your business. Emphasize that the money will be used for growth and expansion to make your business even better (you shouldn’t use customer financing to keep a flagging business going). This will give customers confidence that you’re not going to take their money and run.
One option for simplifying your search for customer funding is using “crowdfunding” websites like Prosper.com, PeerFunder.com or IndieGoGo.com. These sites, which connect small business owners and others with potential investors, can be a good way to expand your financing search beyond customers to your customers’ network of friends. Of course, be sure to do your homework about what each site offers and your responsibilities and risks.
Before approaching customers about financing, be sure to talk to your accountant and attorney about how to structure financing options to be sure you’re following legal regulations and requirements.
Image by Flickr user Hamed Saber (Creative Commons)
Google+
