3 Alternative Funding Options for Your Startup
Even though I’m a big believer in bootstrapping, sometimes there’s just no avoiding the need to raise capital. Most entrepreneurs immediately think: investors. But that’s not your only choice – and it may not even be the best choice for you and your company.
You have options.
Venture capital isn’t all rainbows and unicorns.
As I’ve discussed in a previous post, there are very real downsides to taking on investors.
While they may seem like the answer to your prayers, and in some instances they may be, the relationship is more complex than simply depositing a check.
Alternative funding options.
So before charging ahead and assuming professional investors are the answer, I encourage my clients to explore all their options. The first two I’ll discuss are the more traditional funding routes.
1. Bank loan.
It may not sound glamourous, but a bank loan can be a great option… if you qualify. Since banks are conservative by design, they typically require:
- Collateral (assets pledged to secure the loan).
- A track record showing that you’re profitable.
- And a comprehensive business plan.
So… nice if you can get it, but if you don’t qualify, you’re out of luck.
2. Government grants.
Thousands of grants are available based on industry, geography, gender, ethnicity, veteran status and more. It’s worth taking the time to search the Internet and see what might be available to you. If you’re based in North America, here are some great places to begin your search:
3. Strategic partners.
If you’ve come up empty in the loan and grant departments, don’t give up hope – I’ve saved the best for last.
While strategic partners may be less common funding sources, they’re my personal favorite. It’s not that they’re unheard of when it comes to funding, it’s just that the idea simply doesn’t occur to most people – which is a shame because strategic partners are the most likely to fund your business.
- They have a vested interest in your success. In other words, the more you succeed, the more they succeed.
- They know your business better than most (especially professional investors) because you’re both in the same industry.
- They frequently end up being the most helpful to you in the long-run… because they understand your business better than most.
THREE types of strategic partners.
When it comes to strategic partners, there are three types that could be just the ticket when it comes to raising capital for your business:
a) Suppliers (a.k.a. vendors) who sell goods and services directly to businesses. One of my business plan clients – a beverage manufacturer – got the funding she needed from her bottle supplier. The best part? The bottle supplier then introduced her to a much better distributor – someone who was more reliable and offered better pricing. Pretty great, right?
b) Distributors (a.k.a. middlemen) who buy products from suppliers and then sell those products to businesses. Like suppliers, they’re highly motivated in terms of wanting their customers to succeed.
c) Customers who buy what you’re selling because, presumably, they like what you’re selling. And if they love it, well, they may very well be a great potential investor.
All three types are potentially valuable financing sources because they’re the people who know your company best and they have cash flow (one hopes).
What’s more, their long-term goals are more likely to align with yours as compared to professional investors (venture capitalists, angel investors, etc.) whose primary objective is to focus on fast growth for a profitable exit at the earliest opportunity.
For this reason, I encourage my clients to consider their strategic partners as viable financing options. Added bonus: they may be generous with their credit terms when you’re just starting out.
There’s nothing like finding a supplier, distributor or customer who believes in you and your company so much that they’re willing to put their money where their mouth is.
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