Alternative Financing Methods

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Definition

Every startup needs access to capital, whether for funding product development, for initial rollout efforts, acquiring inventory, or paying that first employee. Most entrepreneurs think first of bank loans or friends and family as the primary source of money, only to find out that banks (and often friends and family) are really the least likely benefactors for startups. Thus “alternative” really means maximizing non-bank and non-friends and family financing.

When starting your new company, you may quickly become aware of the financial challenges that await you. There are many different ways you can finance and fund the growth and success of your company without utilizing traditional debt or equity models. Often overlooked, there are many alternative sources of funding and financing available that apply creativity and innovation towards supporting business. Some of them require extra work, and some of them require extra time, but all of them provide you with unique ways to raise capital without traditional markets.

Thanks to social media and other internet based technology, entrepreneurs are able to leverage their networks of friends, colleagues and like-minded individuals to gain funding through crowdfunding websites. Typically, entrepreneurs post a request for funding on a crowdfunding site, such as kickstarter.com , with a description of their project or company and what they tend to spend the money on. Depending on the site, funding may come as a donation or a loan. Crowdfunding is not for everyone. It is generally successful for entrepreneurs with a compelling story or project that has universal appeal.

Another source of funding comes from grants. However, grants are extremely rare for for-profit businesses and we usually recommend against pursuing this strategy.

Despite the tough economic environment there are still ways to raise money in this day and age if you have a good business that is also a good investment. No matter what method of financing you chose, we recommend that you put together a professional business plan and speak with a trusted financial adviser.

Below is a list of additional source of alternative financing methods. If you would like to read more about a topic, just click the phrase and you will be redirected to its post!

Categories

Bartering

Customer Financing

Supplier Financing

Grants

Crowd Sourcing

Awards/Contests

Selling Assets

Exchanging Assets

Donations

Peer to Peer

Employee Stock Ownership Plan

Partner Equity Investment

Direct Public Offering

Seller Financing

Landlord Financing

Sponsors and Advertising

Work Part time, Offer Consulting

Investment Groups

Personal Account Financing

You may note that we have not mentioned more conventional and less creative sources of startup financing such as angels or venture capitalists. However, for new entrepreneurs seeking seed or even pre-seed capital, these sources usually have little interest in your early-stage or seed financing (VCs in particular) as they prefer the lesser risk of a proven business model with real customers and real revenues that are ready to scale.