After conducting thorough market research, you’ve finally launched your dream business, but there’s one problem: money. You try to get a bank loan, but they don’t want to touch your startup with a 10-foot pole as they’re only interested in established businesses.
So, you try crowdfunding, but it fails as you struggle to convince investors that you have a viable business idea. Do not despair, as this guide highlights crowdfunding alternatives, such as small business grants, as well as how to make a budget sheet to help get your dream business off the ground.
What alternatives are there to crowdfunding for a startup business?
1. Family and friends
You can promise to repay when the business is doing better or exchange the cash for equity or shares. The great thing about funding from family and friends is that the grant may be a gift, and even if it’s not, they will offer flexible repayment terms that are interest-free.
The success of such an arrangement will depend on how well off your family and friends are.
2. Small business grants
Refers to money given to a business, but you don’t have to repay, unlike a loan. You can get grants from the local, state, or federal government, as well as trusts, individuals, and corporations. Since this is free money, you will face fierce competition to acquire a business grant. Grants usually cater to a specific need, such as veterans, rural farmers, or women. Examples of such contributions include the USDA grants for rural businesses.
3. Invoice factoring
Invoice factoring is the practice of selling an invoice to a factor. If you sell goods on credit, it may take longer than anticipated to receive payments, yet you have urgent bills to settle, such as payroll.
So, you sell that invoice to a factoring company in exchange for instant cash; they will follow up on its payment. The great thing about invoice factoring is that you don’t need to have an excellent credit history as the transaction depends on the payment ability of your customers. That said, invoice factoring charges can be costly.
4. Asset finance
In a similar vein, asset finance is a form of loan where the lending institution will buy an asset for your business. You then purchase or loan it from them through monthly repayments. This arrangement lets you afford an investment that was way out of your budgetary reach.
But, if you fail to make a monthly payment, the lending company may repossess the asset for breach of contract as it’s in their name.
5. Angel investments and venture capital
If you have a great business model, you can pitch it to angel investors or venture capitalists. They can pump in some needed cash and even provide expert advice or resources to help you along if they like it. The main issue is they will want an equity share of the business, especially venture capitalists.
Requirements for startup funding
There’s no one-size-fits-all list as each investor will have different funding requirements for each startup. Generally, you would need the following:
● Working full-time on the business: you have to show your commitment to the cause. Few investors will want to invest in your business if you don’t fully concentrate on it.
● Who owns the business?: For this, create a capitalization table (cap table) showing all the equity ownership.
● Business plan: investors will want to see how you plan to run the business in the future. Provide a viable, scalable business model if you’re going to win them over.
● Traction: alongside a strong pitch, you need to demonstrate that your business is worth investing in. That means providing qualitative and quantitative growth metrics, such as website visitor data and social proof.
Starting a business without funding: how to do it
It’s not impossible to start a business with little or no money, but you need financial discipline to succeed.
-Firstly, create a plan and budget with whatever you have, and stick to it religiously. If you still can’t hack it, consider business grants, angel investments, family and friends, or private financing.
-Create a strong business plan if you are to convince others that your business is worth investing in.
-Network, experiment, apply your skills and keep adapting to the market demands to stay afloat. Finally, keep costs low and always have a monetary reserve for when things get hairy.
To conclude, crowdfunding isn’t the only way to secure funding for your startup if you don’t have the finances. The alternatives include small business grants, angel investments, and asset financing.
Create a strong business plan, and work full-time to convince potential business partners to invest in your business. Visit the link in the introduction section to learn more about alternative financing.
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