6 Ways To Fund Your Startup Without Investors

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Limited access to startup and expansion capital and the relative undercapitalization of African American-owned businesses at inception remain the toughest obstacles for women entrepreneurs. While there’s an increasing number of minority-owned, venture-backed businesses providing early-stage and high-growth entrepreneurs with access to capital, many budding business owners are unaware or unprepared to go after equity financing. Many startups turn to banks, not investors or crowdfunding, to jump start their businesses. However, if you don’t have any revenue, contracts, or customers, no lender will fund your business. What’s the alternative outside of self-financing? Here are five ways to fund your startup (some are courtesy of BankMyBiz.com.)

1. Don’t Give Away Equity if You Don’t Have to …

Hitting all your metrics to raise your next round? Those same metrics probably qualify you for some very cheap money from banks and the banks won’t dilute your equity. Money without diluting your equity means you have more control of your company, and you can grow more between each round and therefore get better terms from investors.

 

2. Revenue = Funding

Not all startups are pre-revenue. Many startups have customers and month-to-month revenue, why not use this money to grow faster? A Revenue Based Loan can turn your revenues into growth capital and only require revenue. If you can’t get a revenue based loan try a Merchant Cash Advance – a more expensive option for the same thing.

3. Factoring

One of the most common and powerful ways to get growth capital is Factoring or “selling your accounts receivable.” In English that means, imagine you do business with a hospital and they owe your company $50,000 for a contract; a bank that offers factoring will trust a hospital to pay its debts and will “factor” ~$43,000 of the contract and give it to you front. Factoring can be very expensive (watch those fees), but if you are growing and your accounts receivable are high, then factoring is a way to grow very, very quickly.

4. Turn a Gap into a Bridge

Sometimes, companies have a cash gap between a seed and an A round or an A and a B round. Bank “Bridge Financing” can be a perfect fix. Look into Community Development Funds or Nonprofit Lenders who are interested in regional businesses being successful. Often times these lenders are willing to take on more risk than others because they have a mandate to support local economic development.

5. Warrants for Equity are The Future of Startup Financing

A Warrant for Equity is like a stock option and gives its holder the right to buy stock at a certain price at a certain time. The most cutting edge banks, like Silicon Valley Bank, are willing to work with startups in the Internet economy by learning how to turn equity into an asset. These cutting edge banks will know how to take warrants as collateral for a loan or line of credit.

6. Equity Crowdfunding

In May 2016, the U.S. Securities and Exchange Commission enacted Title III of the JOBS Act, allowing non-accredited investors—the majority of the U.S. population—to invest in startups. As a result startup founders can crowdsource for funding and everyday people can become angel investors. Check out TOP EQUITY CROWDFUNDING PLATFORMS THAT ALLOW YOU TO INVEST IN STARTUPS.

-Sequoia Blodgett contributed to this piece.

-Editor’s Note: This article was originally published on July 7, 2014 

The post 6 Ways To Fund Your Startup Without Investors appeared first on Black Enterprise.

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