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Finance

Founders should know about these 9 alternatives to VC funding

Posted by Shivali Anand

December 27, 2021 | 3-minute read (504 words)

Two people discussing on financial graphs with the help of paper and white board

Whether you've been in business for a long time or are just getting started, you'll inevitably run into circumstances where you need to raise funds. Many entrepreneurs consider venture capital to be the most desirable method of financing because in addition to money, it provides industry connections, a wealth of experience and a clear company strategy.

On the other hand, venture capitalists may not always be willing to assist small business owners. And founders may not want to cede control over their decision-making authority or limit their potential to profit from their ideas.

Here are nine alternatives to venture capital investment if you need capital to spur your business ahead toward success.

Angel investors

Angel investors are typically wealthy individuals interested in assisting early entrepreneurs with launching their ventures. While some may be interested in owning a piece of your firm, others would rather see a return on their investment.

Crowdfunding

Instead of seeking money from a single source, crowdfunding sites such as Kickstarter and Indiegogo allow startups to combine modest donations from a varied spectrum of individuals. This strategy of obtaining funding can help firms get a financial boost.

Bootstrapping

Bootstrapping refers to the process of beginning a business from the bottom up, using personal funds, grit and the proceeds from the first few sales. It enables business owners to have complete control over all business decisions.

Grants

Whether federal, state or local, many government entities are dedicated to assisting small companies in their growth. The U.S. Small Business Administration is one such organization, and it aims to help small businesses by linking them with lenders and grant sources to help them plan, launch and scale their operations. Small company entrepreneurs can also get coaching and contracting help from the SBA.

Business credit cards

Entrepreneurs can use their business credit cards to make credit purchases for their businesses. On the other hand, these cards tend to have strict spending limits, as well as high interest rates, and they may not be covered by the Credit CARD Act of 2009.

Invoice financing

Factoring, often known as invoice finance, allows businesses to borrow money against their outstanding accounts receivable. It will enable them to improve cash flow, pay employees and suppliers, and spend on operations and development without waiting for their consumers to pay in full.

Convertible debt

When a firm borrows money from an investor or a group of investors, the debt is convertible to equity in the future.

Peer-to-peer lending

Peer-to-peer lending, also known as marketplace lending, allows companies to acquire loans directly from other individuals via various websites, bypassing banking institutions as middlemen. Some of the most well-known P2P lending sites in the U.S. include LendingClub, Peerform and Prosper Funding.

Line of credit

A line of credit is similar in some ways to a credit card. The lending firm provides a maximum line of credit that can be used for short-term expenses, like adding inventory, buying equipment and covering operating costs. Interest is assessed only on money that is withdrawn.

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