Alternative Funding Methods for Startups
Raising capital is not only crucial to keeping your business running, it is also one of your primary responsibilities as startup founder. Raising money for your startup will always be challenging as you will have to make a tough decision of whether to give up some of your equity or take on additional debt.
Before, startup founders were limited to VCs or angel investors for startup funding. Nowadays, there are more options when it comes to startup funding:
Crowdfunding is a financing option that lets you get small amounts of money from a larger pool of people. Platforms such as Kickstarter and Patreon allow for people looking to invest in cool new startups to provide founders the funding they need to get the business off the ground.
Sometimes particularly innovative products can raise millions of dollars before they even open up their doors. In addition, because there are people who are willing to spend money on you and are already interested in your startup, you can preemptively build up a customer base.
However, it can be difficult to have a successful crowdfunding campaign. You will have to deliver promises, understand site algorithms, and promote investment by offering rewards.
Friends and Family
Asking money from friends and family can be another way to receive the initial funding for your business. In fact, there have been many billion dollar businesses that have been bankrolled by the founders’ parents, such as Amazon and Facebook.
You want to make sure that you only borrow an amount that you can reliably pay back so you do not harm any of your relationships.
Business grants are essentially free money that is given to you based on the expectations of your business success. They are usually distributed by governments, corporations, or foundations. Grants are widely sought after as they do not have to be paid back and business owners are not required to give up equity in exchange for a grant.
Business grants will also usually have particular conditions attached for applicants. This can range from grants only being given to women or minority business owners or a grant that helps local businesses boost local traffic.
Pitch competitions are designed for startups to pitch their ideas to investors, corporate executives, and industry experts. If you win the contest, then you get the prize money for funding, and even if you do not, you may get interested parties willing to invest in your product.
The downside is that it is a lot of work to enter into a pitch competition and money is not guaranteed, so it will be unhelpful if you are looking to secure funding in the near term.
Small Business Loans and Lines of Credit
Some finance companies will offer loans and revolving lines of credit to fund your business operations and growth. Most banks are unlikely to lend to startups, but there are different alternative financing options. You may also instead decide to take out a personal loan to fund your business, but this will put your personal credit at risk and you will need to separate business and personal finances to avoid later headaches.
Revolving lines of credit are a flexible financing solution that can help meet a variety of financing needs, from payroll to making investments. However, even more so than loans, it can be difficult for startups to qualify for a business line of credit.
When you utilize invoices as a payment method, it can take a few months before you actually see payment for services rendered. This funding gap will often cause problems for your startup’s cash flow.
Invoice factoring helps your startup bridge this funding gap by allowing you to sell your unpaid invoices for immediate cash advance. You can use the funds for any business related expenditure.
Accel Business Funding has provided invoice factoring, business loans, and business lines of credit and has funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!