Besides savings and bank loans, startups have access to alternative means of capital such as crowdfunding, angel investors and venture capitalists.

Entrepreneurs should weigh the pros and cons of each option prior to committing to cater their business’ needs, growth and long-term plans through startup equity sale, or some other methods such as business credit cards, or service or product presales.

Crowdfunding

Crowdfunding is one of the fastest growing alternative financing options for startups. Instead of going through banks with set underwriting processes and terms sheets, crowdfunding goes directly to individual investors and lenders.

Debt-based crowdfunding lets your business borrow money from lots of little investors at low interest (take a look at Kiva’s form of debt-based crowdfunding, for example); meanwhile, equity-based crowdfunding allows your donors to own a piece of your business in return for their investment – this crowdfunding method is best used when you have a product with guaranteed demand.

Revenue-based financing offers another secondary source of funding, with the creditworthiness of the startups evaluated based on future recurring revenues. Our incubator, Efficient Capital Labs, lets entrepreneurs receive funds in a matter of hours.

Angel Investors

Funding from angel investors offers an important source of capital, as well as sound advice and contacts. Yet, angels are also more likely to insist on strict requirements before agreeing to fund a request – proof of concept, an existing client base – in short, they ask for more before their check clears.

Revenue-based financing is a second type of alternative finance for startups, in which lenders assess a business’s creditworthiness based on future recurring revenues, rather than past income or assets, making it particularly appropriate for early stage companies with subscription-revenue models looking to scale.

But before signing up with a different funding partner, startups must first understand exactly what that opportunity entails, both pros and cons. Present your main features and limitations to your finance provider, who will try their best to ensure the funding option they are offering is most suitable for your startup business.

Venture Capital

Unlike banks, venture capital investors will bear a lot of risk in exchange of a stake in the company they invest with. Generally, venture capitalists prefer to invest in companies that have a potential for exponential growth and participation in the management of the company to achieve their goals.

As an alternative to bank debt, venture debt provides a compelling way for startups to fund their growth needs. Early-stage startups can get financing in the form of loans based on an amount derived from their historical recurring revenue without giving up any equity or facing strict credit standards.

Startups may also find capital elsewhere, such as bootstrapping (with founders’ own savings or with service or product presales, which finance the company themselves) and, finally, using a business term loan that has to be repaid over a number of years, usually with fixed payment terms not catered to their specific business needs.

Small Business Loans

From time to time, your entrepreneur can fund by other non-bank loans means: friends and family, product or service presales, available savings/assets, or accessing a line of credit.

Startups can utilise invoice factoring to further increase their cash flow and be able to explore other avenues of growth. Since invoice financing involves more eligibility requirements and less rigid application procedures than those of business loans, factoring would make for a good source of startup finance.

Another option is nonprofit microlenders, who have less restrictive underwriting requirements than banks and often lend to startups. CEI, for example, provides revenue-based financing that assesses a company’s future recurring revenues, rather than its past operating history.

Grants

It’s the type of fee that seems like free money, but most grants are stingy. They’re evaluated by your personal credit score, and even the select few that you might qualify for could ask that you relinquish percentages of ownership in exchange for cash; or offer funds for specific industries or demographics.

Equity financing means losing control; when it comes to other ways to obtain capital, in addition to securing non-dilutive funding your startup can have access to cash without losing any equity. Think every option through and choose one that follows and achieves your individual goals and tasks; in addition to traditional sources of capital, efficiency-driven revenue-based financing (RBF) through companies such as Efficient Capital Labs can provide funding based on recurring revenues while keeping equity undiluted – ask for it today and learn how faser can flourish with the help of a whole new, non-dilutive, funding paradigm.