Posted by Neha De
September 3, 2020 | 3-minute read (514 words)
Whether you have been running a business for quite some time or you’re just setting up your company, you're bound to run into situations where you’ll need to raise money. Venture capital is considered to be the most popular form of fundraising by many entrepreneurs, because in addition to money, it provides you with industry connections, an abundance of knowledge and a clear direction for a business. However, venture capitalists may not always be inclined to help small business owners.
If you are looking to secure funding for your startup but you aren’t seeking VC money, here are nine alternatives to venture capital funding.
Angel Investors: Angel investors are typically wealthy individuals who have an interest in helping startup owners get their businesses off the ground. While some may take a stake in your company, others prefer a return on their investment.
Crowdfunding: Crowdfunding platforms such as Kickstarter and Indiegogo allow businesses to pool small investments from a diverse range of investors instead of seeking out investment from a single source. This method of raising funds can give a financial boost to startups.
Government Grants: Many government agencies — federal, state or local — are committed to helping small businesses succeed. One such agency is The U.S. Small Business Administration (SBA) that supports America's small businesses by connecting them with lenders and grant sources to help them plan, start and grow their businesses. The SBA also offers counseling and contracting expertise to small business owners.
Company Credit Cards: Business credit cards allow entrepreneurs to make business-related purchases using credit. However, these cards tend to have higher limits — in addition to higher interest rates — and they may also lack the consumer protections enforced by the Credit CARD Act of 2009.
Invoice Financing: Invoice financing, also known as factoring, is a way for companies to borrow money against their outstanding accounts receivables. It helps them improve cash flow, pay their staff and suppliers, and reinvest in operations and growth, without waiting for their customers to pay their balances in full.
Peer-to-Peer Lending: Also, known as marketplace lending, peer-to-peer (P2P) lending allows businesses to obtain loans directly from other individuals through various websites, thereby cutting out the financial institutions as the middlemen. Lending Club, Peerform and Prosper are some of the most notable P2P lending platforms in the U.S.
Bootstrapping: Bootstrapping is the process of building a business from the ground up using personal savings in addition to the money coming in from the first few sales. It allows entrepreneurs to maintain total control over all business-related decisions.
Lines of Credit: This method of raising funds works somewhat like credit cards. Lending companies provide a maximum line of credit, which can be used to pay for short-term expenses such as expanding inventory, purchasing equipment and covering operating costs, among other expenses. Interest is charged only on the money that’s withdrawn.
Convertible Debt: Convertible debt is when a company borrows money from an investor or a group of investors, with a collective agreement in place to convert the debt to equity in the future.