As the budding founder of a start-up, ticking off financial support is an aspect that will either make or break your vision to embark on your new venture. Searching for a funding option tailored to the age of your business, the speed in which you require finance, and eligibility will determine which route to take. Alternative finance broadens your options, rather than the traditional bank loan, which requires you to work your way through administrative hurdles, multiple checks and a central switchboard.
Crowdfunding
This is a breakthrough method that has helped start-ups rise to the ranks by achieving their first round of investment through crowdfunding platforms. Popular names include Crowdcube, Crowdfunder and Kickstarter through which many high profile businesses first received funding. For example, Oculus founder, Palmer Lucky, invented one of the early virtual reality prototype headsets, a project which attracted $2 million in funds through Kickstarter. The business went on to be acquired by Facebook for around $2 billion.
There are different types of crowdfunding, including donation-based which is where an individual donates to help the business idea or an envisioned product to materialize into a tangible reality. Contributors are sometimes incentivized with vouchers, a discounted service or a product prototype.
Debt crowdfunding, also known as peer to peer funding (P2P) is another type of crowdfunding, which is when a start-up receives funding from an individual that is repaid at a later date with interest. Equity crowdfunding is also an option. This offers shares or a stake in the business in return for money.
This form of funding can be fast, easy and double up as a marketing effort as your campaign to raise money will be published on online platforms reaching millions of visitors. If you are unable to secure finance through traditional measures, this is an alternative measure that can help you realistically reach your goal.
Angel Investors
Angel investment is a form of equity finance received from high net worth individuals experienced in high-risk investments and business management. Angel investors typically mirror the role of a mentor, sharing their knowledge to enrich the business and champion growth. The angel investor will take shares in the business in return for equity finance; funds that will help you launch your start-up off the ground.
An angel investor is typically an individual with an interest in start-up investing, or part of a wider syndicate of angel investors. The market for angel investment is competitive as many budding start-ups battle for this type of investment as it provides the necessary cash boost and hands-on experience to enrich the business.
Invoice Finance
After the business is established and begins to receive a steady inflow of orders, you may be eligible to take out invoice finance, which essentially unlocks funds tied up in invoices. This type of finance offers advanced payments on invoices that are yet to be paid. This can improve cash flow, helping you keep on top of paying bills, suppliers and staff members. There are two types of invoice finance options allowing you to pick the level of responsibility you feel comfortable with; invoice finance and invoice discounting.
If you begin trading with a high-risk client, you may be able to take out bad debt protection in the event of non-payment. This is when the policy will pay out a majority percentage of the invoice if the event that a customer fails to pay.
Asset Finance
Asset finance allows you to access equipment, machinery, tools and vehicles without the upfront cost. Depending on the type of finance, you can split the cost into affordable payments, helping you build the required pool of resources for your business. Asset finance can take several forms, such as hire purchase, lease financing, and equipment leasing.
If you have any existing assets, you may be able to release cash tied up in the equipment by opting for asset refinancing. This can help fill any gaps in funding if you require extra cash for your start-up.
Government Grant
A federal start-up grant can offer anything between a couple of hundreds or even thousands of dollars to assist in launching your new business. This may include perks such as free mentoring to help guide you through your first year of trading.
Venture Capital
Venture capitalists are private investors who are part of a venture capital firm specialising in high-risk portfolios. Venture capital is invested in return for equity, so shares in the business that in some cases could make the venture capitalist a partial owner of the business depending on the type of shares. Venture capital can help grow your new business; however, it can feel pressured due to the high expectations set for the business.
Readying to unveil your start-up can be a daunting process without securing the finance required. By seeking alternative measures other than a bank loan, you may be able to obtain finance in a quick, easy, and more accessible manner. Seeking alternative funding as such can help fulfill customer demand, cash flow, and manage unexpected expenses. Non-traditional options are growing in popularity as an increasing number of innovative solutions are being introduced to entrepreneurs and new business owners.
It’s worth keeping note that traditional forms of funding include taking out a loan or accessing finance from your local bank if you have a stable relationship and strong track record with them. By exploring all of the above and selecting an option that suits your business best, you can fuel your business with enough funding to take off in full steam, rather than becoming over reliant on external funding to keep it afloat.
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