You know your business idea has the potential to take off and become a runaway success. The problem is that you need money to get to market and make sure that everyone knows about your business. What is a founder to do? While you could seek out venture capital, that means you’ll have to give away equity in your company piece by piece. The last thing you want is to end up holding one of the smallest pieces of the pie at the end when it’s your brilliant idea and sweat that started the business in the first place.
Luckily, there are options to raise money that don’t involve flying to Silicon Valley and having lunch with every angel investor who will take a meeting with you.
Here are some ways to finance your startup without having to give away all your equity.
One of the most popular ways to finance your startup without giving away equity is through crowdfunding. We’ve all heard success stories of entrepreneurs with cool or weird products who go to Kickstarter and Indiegogo and end up raising millions of dollars even before their companies have officially launched. It is a great way build a customer base and get the money you need for your business by giving away bonuses rather than pieces of the equity pie.
The downside is that it actually takes a lot of work to be successful at crowdfunding. Contrary to popular belief, those who have succeeded didn’t just throw their products up on the site. They spent months working on professional videos and learning about how to maximize the Kickstarter or Indiegogo algorithms.
Raise your hand if you don’t like free money.
I’m going to guess you didn’t raise your hand.
Grants give you money to start your business without strings attached. Often all you are expected to do is succeed, and perhaps provide an update from time to time.
Business grants can vary from as little as $500 to as much as $100,000. Sometimes they’re for great business ideas, but other times grants might target a particular group, like women, and seek to boost businesses owned by those groups. One bonus is that sometimes grants come with added benefits like mentorship.
Do you have such a great business idea that you think it’s likely to be a winner and you think others will too?
If so, you might want to enter it into pitch competitions.
There are likely some local pitch competitions in your city or state, but there are also national pitch competitions such as those listed on Pitch Skills. The great thing about pitch competitions is that even if you don’t win, investors in attendance might see your business idea and decide to invest.
The downside is that it’s a lot of work to enter into a pitch competition and money is not guaranteed, so it won’t help if you need cash now.
Small business loans
There are all sorts of different small business financing options available to you. The challenge is that many of the lenders, such as those in control of loans backed by the Small Business Administration, won’t lend to brand new startups.
If your business is still in seed stage, you’ll need to seek out lenders that are willing to help early-stage entrepreneurs. You might look at credit unions who are more likely to take a chance on a new small business than traditional lenders, or you could look into online lenders who specifically are looking to work with early-stage businesses. There might also be state or local programs designed to encourage startups that offer these types of loans.
Other types of loans
While you would rather not put up more of your own cash or borrow, it might be your only option. You could take a home equity loan or line of credit out on your house, or apply for a second mortgage. If you have $50,000 or more in your tax-deferred retirement account, you can also use the Rollover for Business Startups (ROBS) exemption and access that cash without penalty. But your best bet might be a personal loan without collateral if you have great credit and a steady income.
If you’re just starting out but already have a few clients, you could use invoice factoring as a way to find short-term financing for your business. You essentially get a cash advance on the money owed to you, but the unique thing about it is that they don’t check your credit before approving you. The downside is that terms can be as little as 30 to 90 days and they charge a high APR on the money borrowed.
Family and friends
Sometimes you need money and the best way to get it is to ask for a loan from a friend or family member. While many people ask friends or family for equity investments, they might not be willing to make one if they’re worried about getting their money back.
By asking them for a loan instead, you can guarantee them that you will pay them back whether or not your business succeeds. If you go this way, make sure to get everything in writing.
Final thoughts on funding without giving up equity
When trying to get your business up and running, there are many tough decisions to make, and what type of financing to use is one of the most important. Giving up equity too early and at too low of a price can haunt your company for years to come. Before you give up ownership of your company, be sure to look into the other options available to you.