Starting your own business can be an exciting time. You have a great idea or product you know everyone will want, the only problem is you lack the capital to get it going. While some traditional lenders will loan money based on a strong business plan, they often require sufficient personal collateral to back the loan. If you are looking for alternative means of financing your startup, below are four options that may be the key to your startup capital.
Crowdfunding sites such as Kickstarter, draw people who want to make smaller investments in companies or ideas they are interested in. The investors are typically rewarded with packages including the product being manufactured and sometimes adding your name on websites or advertising pieces. When choosing a crowdfunding site, be sure to review all of the terms and fees included.
Venture capitalists, often referred to as VCs, are investors who look for high growth and high return investments. They are willing to invest into high-risk companies in return for the possibility of a high payout. This is the concept behind the show Shark Tank, more or less. They often invest in more specific areas and may require a decent amount of equity in your company in return for their investment. Be sure to fully address the particulars of the agreement before signing with a VC as some may require the return of their investment within a 3-to-5-year period which may be difficult for a startup company.
An angel is an investor who is willing to put money into higher risk startups in return for 20 to 25% equity of the business in most companies. These investors are hoping for a higher payout, but are more willing to take some losses along the way. They will typically invest in companies or people that they feel have good potential and use their strategic influence to help get the company in the right direction.
What is accounts receivable financing? It’s a type of loan that uses your invoices to serve as the collateral asset against the loan. When determining the loan amount, companies will place more value on current invoices as they know they are more likely to be collected in full than invoices that have been passed due for an amount of time. Accounts receivable financing is a great option if you have expected income, but are lacking in cash flow to fund necessary equipment or other cash flow needs.
If you are starting a new business or adding a new company or division to a current one, the above four alternative options may help gain your company enough capital to go to the next level.