Home Professionalisms Cash Crunch? 5 Unconventional Ways To Fund Your Startup

Cash Crunch? 5 Unconventional Ways To Fund Your Startup


by Daniel Pigg, director of business engagement and an instructor at Indiana State University

Would you bet money on an inexperienced horse? Few people would. Yet despite an unproven track record, first-time entrepreneurs consistently seek funding. As a result, many struggle to convince financial institutions to lend them a penny.

The issue is one of reality rather than greed or emotion. Statistically, plenty of startups fail — up to 90% a year. That’s why lenders rely on the five C’s as a guide: credit, capacity, capital, collateral, and conditions. Most young founders lack at least a few of those C’s, making debt financing only feasible under limited conditions (and with plenty of upfront legwork and planning).

Though this seems to paint a bleak picture for young entrepreneurs who lack the five C’s, it doesn’t have to paint them into a corner. Innovators can lean on both traditional and unexpected methods to secure seed funding ethically and legally.

Beyond Bootstrapping and Begging.

When banks turn their backs, founders usually take one of two roads: The first is bootstrapping, which involves liquifying all assets and operating on personal cash; the second is securing funding from family and friends. For generations, these strategies have boosted businesses from dreams to disruptors.

Today, options like online crowdfunding, accelerator and incubator funding, and pitch competitions have opened doors. The beauty of a crowdfunding site like Kickstarter is that founders enjoy limited risk. They’re trading shares for the ability to use others’ money.

It’s an attractive transactional relationship, though it can severely dilute ownership. Anyone who’s watched “Shark Tank” recognizes the challenges inherent to negotiating equity terms. And venture capitalists play the game with scaling in mind rather than trying to make an average return.

Of course, some entrepreneurs can’t avail themselves of these money sources. Thankfully, they don’t have to give up hope.

Finagling Funding From Fresh Sources.

If traditional lending sources don’t mesh with your ambitions, take a deep breath; it’s OK. Other funding streams exist, and they can play a vital role in your company’s birth and growth.

Here are several unconventional ways to generate the fiscal momentum necessary to breed startup success:

1. Get creative with credit cards.

With one click, you can apply for credit cards that offer anything from cash advances to balance transfers with low or zero interest. Though you shouldn’t rely on credit cards to sustain your startup — because of the associated high-interest rates, sizable transfer fees, and late payment penalties — you can strategically use them for short-term gains.

In college, credit cards helped me make real estate profits quickly. After getting a few credit cards, I used the cash advances to make offers on available houses. I was able to renovate and rent those properties within weeks; my system worked because I consistently transferred balances at the end of introductory low-interest terms to take advantage of offers on other cards. This approach takes planning and savvy, so gird yourself to be disciplined about selecting cards and spending wisely.

2. Consider owner financing.

Owner financing is an overlooked opportunity that involves a company owner setting up the transfer of the business, much like a loan. You pay the owner monthly, and you receive an instant business in return. I’ve used owner financing to buy single and multiunit real estate quickly and with great results — and my sellers like avoiding capital gains taxes and recouping more money over time.

How does owner financing work? Let’s say I sell my business to Joe Smith for a cool $1 million. If I receive a check for the money, I’ll be taxed heavily on it; I might even be kicked into a higher tax bracket. On the other hand, I could sell my business to Joe through owner financing: Our terms might include a $1 million purchase price that Joe pays out over 20 years at 5% interest. I would receive $6,600 each month for two decades, which adds up to nearly $1.6 million. That’s lucrative and smart — provided I don’t need the lump sum now.

3. Take out student loans.

Student loans are based on financial need, taking your family’s income into consideration. However, it’s possible to qualify for loans even if your tuition has been fully paid by other means (like scholarships). Some crafty entrepreneurs max out their student loans and then use the excess proceeds to fund their startups.

To take out student loans, you must qualify financially. Carefully examine the repayment terms of those loans, although you’ll likely find them more favorable than what a bank will offer. Like other nontraditional funding, student loans helped me become flip houses and own rental properties as an undergrad.

4. Seek potential partners.

Some wealthy people romanticize the idea of owning a business but lack the time to do so. These potential investors make wonderful partners. In general, they’ll be happy to ditch the day-to-day operations in exchange for having occasional creative input in the company.

Offer these individuals an ownership stake with limited responsibilities. In essence, your silent partner will play the part of an angel investor — but with more say. Be sure to leverage your partner’s network and connections to grow your startup faster.

5. Secure terms from suppliers.

Short on cash but determined to succeed as a founder? If you depend on external suppliers to provide you with resources, materials, or products, you might approach those vendors early on to request special payment terms. This could be 30, 60, or even 90 days to pay off invoices.

Vendors will probably tack on small fees for those customized terms, but the price can be worth it. Don’t be surprised if a supplier even agrees to future payment terms for limited orders. Over time, and with dependable payments, you may be able to extend the terms even more to improve cash flow.

No one said finding money would be easy — particularly for fledgling entrepreneurs. But don’t give up: If you have the proper motivation, standards, hustle, and a dash of imagination, you can find funding in streams most people never consider.


Daniel Pigg is the director of business engagement and an instructor at Indiana State University. As an executive-level business consultant, Daniel has helped hundreds of founders and entrepreneurs grow their companies, including through the Sycamore Innovation Lab that he created on ISU’s campus. A serial entrepreneur, Daniel has started businesses in real estate, insurance, and food and beverage. Those ventures include The Sycamore Winery, which he runs with his wife.