Meredith Wood
As a startup founder, one of the most popular questions you’ll get is “Who are your investors?” The industry operates under the assumption that most startups are working with venture capitalists and angel investors, and for good reason. VCs and angels not only provide the capital to get your company off the ground, but the advice they can give and introductions they can make are often as valuable, if not more, than the money.
But, for young companies just taking off, getting through the doors of VCs and angels can be tough. Not to mention, no founder is ever keen on the idea of giving away a part of their company.
When you’re struggling to find VC funding, or want to maintain complete ownership, people will often recommend you try crowdfunding or reach out to friends or family. So, if you’re a new startup and you need funding for your business, here are 4 places you can find funding outside of the traditional recommendations.
Finance Store works to help businesses secure a line of credit from a bank. You can always go directly to a bank, but this is Finance Store’s speciality, so based on your profile, they know where to apply and how to apply, saving you time and better targeting your application. You’ll need a strong personal credit profile to qualify with Finance Store. Their product is an unsecured line of credit that is typically interest free for 6 to 12 months, even if you carry a balance. From then on, rates tend to be 12% to 24%. Cons? This isn’t an ideal situation if you need cold-hard cash. Think of it more as a credit card.
2. Prosper
A peer to peer marketplace, you can receive a personal loan with Prosper for up to $35,000. Although this is a consumer loan, you can use this money as working capital for your business. From a pricing perspective, their loans have APRs that range from 6.73% to 35.36% APR. The better your credit history, the better your chances of securing a lower APR. If you’ve got a stellar credit profile, definitely give Prosper a look.
3. eLease
If one of the main reasons you need funding is for equipment, then you should consider talking to eLease, who specializes in equipment financing. Even if you are just looking to acquire a small piece of equipment, eLease can help with that (the smallest deal they can fund is $3,000). Be prepared: as a younger company, you may only be eligible for higher rates. As the founder, also be aware you’ll need to sign a personal guarantee. However, since the equipment you are financing helps collateralize the loan, equipment financing might be a better option for you than other traditional funding sources.
4. Business Credit Cards
There are various pros and cons to using a business credit card to finance your business. If you can find a card that has 0% introductory APR, it could be a solid source of capital. But, often very quickly that offer expires and the rates then become incredibly high (often higher than Finance Store’s line of credit). The other downside is, similar to Finance Store’s line of credit, credit cards aren’t ideal if what you really need is cash. So, if you’ve exhausted the options above, credit cards could be an option, but only if you really understand all the details of the relationship. If you know you can pay the bill on time each month and have a true understanding of your rates, then credit cards can be an option. Usually, they are a better fit once your business is generating some revenue, and you can use the credit card to invest in items that will help you make sales that month, and then use the revenue generated from those sales to pay off the statement.
Most founders start their business under the assumption that venture capital is the only way to go. But is giving away a part of your business really better than taking on debt? It’s hard to say which is a better move for your business. Investors come with knowledge and connections. However, you may get more money by waiting to go to investors when you’ve fleshed out your business model and have actual revenue. Debt financing could be a good way to get your business to this point, and the options above are a great place to start.
About the Author
Meredith Wood is Editor-in-Chief and VP of Marketing at Fundera, a marketplace for small business financial solutions. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
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