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As your business grows, you’ll likely hit a point where you need to think about financing the next phase. Regardless of whether you decide to bootstrap or finance, there are pros and cons to both. More often than not, there isn’t a “one-size” solution (otherwise business financing would be easy). It’s something definitely worth hiring a financial professional to help with, and here are a few things to keep in mind when you meet with them and start charting a path forward.
Crowdfunding: A Modern Approach
Crowdfunding is like throwing a party where everyone chips in to buy the snacks — except, in this case, you’re funding your business. You’ve likely heard about platforms like Kickstarter, Indiegogo, or GoFundMe. Each has a slightly different was to pitch your ideas to potential micro-founders. There are often perks pledged to funders (after the funding goal is reached, of course) so keep the cost of those perks in mind when you set your funding goal. But it isn’t just about raising cash — it’s a perfect opportunity to create buzz and win new customers who are invested (often literally) in your success.
But, like any other marketing activity, it will require creativity, thoughtfulness, and good planning. It will require you to tell your story in a way that inspires people to invest emotionally and financially in your business because they believe in you, your business, and where both are wanting to go.
Financing receivables & revenue financing
These are generally not options we advocate, because there are usually better ones out there, but it’s worth asking your finance pro if either is an option worth considering in your particular situation.
Angel Investors and Venture Capital: The Big Leagues
This one is one of the most challenging. If your business has a demonstrably high growth potential, then you need to consider angel investors or venture capital (VC). These are individuals or firms that invest in businesses in exchange for an ownership stake (aka equity). The catch is that you have to have your ducks in a row even more than going to a bank for traditional financing but the benefit is that, if you get the right investor, you’ll have a partner with the experience of taking companies like yours to the next level. It can even be the beginnings of ann exit plan if you’re looking to cash out and reap the rewards of your hard work.
Again, this option takes some serious preparation. You’ll need a solid business plan, a clear and realistic vision for scaling, and a willingness to share decision making with a new partner. But, again, if you find the right partner, the benefits can be game-changing.
Grants: Money with Strings Attached
Nothing in life is free, but there are a huge amount of grants where you will get ‘free’ money that doesn’t require paying back. The catch? There are a few. Mainly that they’re highly competitive and grant applications are about as intense as bank applications. The other big one is that there are sometimes serious strings attached — understanding the grant requirements before you apply is an absolute must. Read the terms and conditions — including the reporting and documentation requirements — and make sure you understand exactly what will be required to make that money ‘free.’
Don’t be too intimidated, despite our scary-sounding cautions. If you can land a grant for your business, they can be a real shot in the arm without the debt load that comes with traditional financing. And there are a large number of grant writers out there; government agencies, non-profit organizations, and private corporations will offer grants for small businesses, and even niches like specific industries, innovation, or community development achievements and goals. (We recently worked with a client who was looking for funding for an electrified fleet.)
Last, but not least, “traditional” financing
Loans can be really scary. High interest rates, amortization schedules, and the scary number on the liabilities side of your financials can be really intimidating — and the documentation required can sometimes be a little intense.
Where this really helps is for businesses that want to bootstrap without emptying their bank accounts — in other words, you keep your cash in the bank in case you need it but are able to use it to pay the note if having an open line of credit no longer fits your business strategy.
Not sure where to start? We can help.
