Published By Janet Gershen-Siegel at March 7th, 2018
Have you got a brand-new business? It can seem like a money pit at times, can’t it? While that is a fairly common issue with new business owners, it does not have to be that way.
You should expect to put some of your own money into a new business, but that should not be the sole place you turn for funding. In order to help you out, here are some other ways of funding your new company which don’t involve rummaging through your couch cushions, looking for loose change.
These are not quite the same thing. An angel investor will typically invest in early-stage or startup companies in exchange for a 20–25& return on their investment.
Venture capitalists will give money to help build new startups which the VCs believe have both high-growth and high-risk potential. These can be fast-growth companies with an exit strategy already in place, and they can get up to tens of millions of dollars for investment, networking, and growing their company. Basically, this is a gamble on future earnings. Also, venture capitalists will often look to recover their investment within a 3–5 year time frame. They will also, often, want to own a piece of your company if not a controlling stake, so be aware of that.
You might want to try a service like Kickstarter. However, make sure you read the fine print, as many crowdfunding platforms will require that you give all of the funding back if you do not make your goal by the end of the crowdfunding campaign (IndieGoGo has a flexible funding option). Also, crowdfunding platforms will take a percentage of the donations, and they generally will push to have you deliver on your promises (so you’ll have to actually manufacture that electric spaghetti twirler or anything else your business is supposed to be doing).
Donors can become weary of crowdfunding pitches, and straightforward businesses might not do so well. Crowdfunding tends to work best for situations where the donors can personally connect with the product or service, so products which aren’t quite on the shelves yet, or artistic endeavors, can do well. But standard widgets which are not going to really change are not going to attract brand ambassadors and, by extension, they probably won’t get donors too fired up.
Another option is invoice factoring, where your company gets a percentage of the money from outstanding invoices fronted by the factoring company. The factoring company then goes directly after any company which owed you money, and collects on it themselves. Hence if a retailer owes your manufacturing company $1,000 on a twelve-month payment basis, you might hand that invoice over to the factoring company in order to get something like $950 in a week. The factoring company would then collect the full amount from the retailer. This allows you to extend credit or negotiate longer-term payment plans in exchange for other, more favorable terms (such as getting a retailer on board with your new manufacturing company) without holding a bunch of what are essentially IOUs for months at a time.
There is also the SBA, which has various CAPLines loan programs and SBA Express. They do not provide the loans; rather, the SBA sets loan guidelines. It’s their lending partners who actually make the loans. The SBA also offers research grants if your company engages in scientific research and development.
Another option is the microloan, which you can’t even get from a regular lender. Instead, you get a microloan from a microlender. Try the Association for Enterprise Opportunity to find a local microlender. A microloan is exactly what it sounds like; it’s not a lot of money. Still, if your business only needs something like $500 — $35,000, then a microloan could fill the bill.
Need more than a microloan? Then apply for a bank loan for your business. Be prepared to put up collateral, which could be inventory or real estate or the like. Loans must be paid back on time or else your business’s credit score will suffer.
One final option is business credit cards. However, be aware that business credit cards must be paid off just like personal credit cards. A high credit utilization rate (the amount of credit you use as divided by the total amount of credit available to your company) of over 30% can bring down your business credit scores and make it harder to borrow money or get another business credit card, so you need to be vigilant with these and pay them off as soon as is practical.
Leave the change in the couch cushions for another day and get your business financed the right way. We can help.