Lack of funding is one of the biggest hurdles startups face. Banks are reluctant to lend to a brand-new business – or even an established business. Even loans from the Small Business Administration can be tough to secure.
If you’re struggling to get the capital you need for your startup, consider these four alternative financing options.
Crowdfunding can be an extremely effective way to raise capital. Platforms like Indiegogo and Kickstarter have helped countless startups get up and running.
The idea behind crowdsourcing is simple: everyday people make small investments in your project, or business.
Maybe you have an innovative new product. You create a compelling page for your product, selling your idea to potential investors through copy, videos and images. Visitors view your product page, fall in love with your idea, and invest (or contribute) to your startup. Most platforms allow companies to give investors rewards. Maybe you send your product to anyone who invests $200 before it’s officially released.
To make crowdfunding work for you, you need to sell your idea to your audience. That means hiring a good copywriter, photographer and videographer. But that’s a small price to pay to raise the money you need to move forward with your startup.
2. Online Lenders
When traditional banks won’t give you a loan, online lenders can come to the rescue. If your startup is seriously strapped for cash and needs capital now, you can take out an installment loan to cover to costs.
Do your research before you sign on the dotted line. Some loans come with astronomical interest rates or may even penalize you for paying off your balance early.
If you can find a good lender, you can get quick cash that can be used for whatever you need. This option is really best for startups that are in desperate need of capital due to an emergency or some other unforeseen event.
Grants are another avenue startups can take to get the capital they need. The government offers grants, which don’t have to be repaid, for businesses focused on science or research.
The Small Business Association also offers grants through their Small Business Technology Transfer and Small Business Innovation Research programs.
In order to qualify, you will need to meet the required research and development goals and also have commercialization potential.
Other grants may also be available through independent organizations. Do your research to find as many relevant grant programs as possible. Exhaust these resources first, as they provide money you don’t have to repay.
4. Venture Capitalists
Startups with high-risk and high-growth potential can take advantage of venture capitalists. Venture capital is given to fast-growing companies with an exit strategy in place. The funds, which are typically in the tens of millions of dollars range, can be used to invest and grow the company quickly.
Venture capitalists may also provide advice on where to market the product and how to launch it successfully. The only drawback is that most will want to see recover their investment within three to five years.
5. Angel Investors
Angel investors are responsible for helping start several major companies, including Costco and even Google. These investors target early-stage companies and startups, and typically look for a 20-25% return on their investment.
In many cases, angel investors can provide strategical advice that can help you get your business off the ground.
These five alternative financing sources can help you secure the capital you need to push your startup forward. Remember to consider grants first, as that money doesn’t need to be repaid. Finding investors, crowdsourcing and online lending are great options if you need a significant amount of cash.