It is often difficult for businesses to secure a loan, and it is even more challenging for startups. However, this doesn’t mean there aren’t ways to raise capital.
Here are several alternative financing options for startups aside from running up your credit cards.
Crowdfunding for your business can be done in several ways. The first is seeking investors through the crowdfunding sites, and you agree to give them something – whether swag or interest on their invested money – in return. Another option is holding the fundraiser on the crowdfunding site, promising to sell your first units to those who invest / buy online. This lets you secure your first few hundred customers while advertising the product in general. The hard part is getting word out about your business and raising enough for your venture.
Borrow Against Your Day Job.
It is common for people to work a day job and then work on their small business at night and on weekends. Now you’re building up the business while still working in a job that can pay the bills. If you still have a job you could consider cash advance loans to raise capital quickly for your small business. Note, however, that you’ll have to pay back that payday loan in your next pay period. The interest rate on these loans is high, and it will be far higher than the interest rate you’d pay from a cash advance on a credit card if you roll the loan over week to week.
Another variation of this is borrowing against your 401K. You’re taking the risk that if you lose your job, you’ll have to pay back the loan with interest as soon as you lose your job or you have to pay taxes and a 10% penalty on the loan balance.
If you can secure a grant, it is the ideal solution. You get money from various government or non-profit funded programs, and it has almost no strings attached. Some grants are specific to building businesses in a narrow focus area – you aren’t allowed to accept the money if you want to start a business in a different city or different industry. The only issue with grants is that you may spend a lot of time applying for grants you can’t qualify for and the money allocated isn’t always enough for your needs.
Venture capitalists range from those who invest millions in a small business featured on a competitive reality show to local business people who invest thousands in startups following advice by Robert Kiyosaki. The upside of these deals is that you get capital invested in your business and expert advice to help your business grow. The downside is that you’re typically giving up equity, you’re always giving up some decision making authority, and you may pay a portion of your profits forever for this assistance.
While getting funding for a brand new startup can be difficult at times, it’s not impossible. All of these options are available to the average startup owner and all have their pros and cons, so choose wisely.