Traditional financing typically starts at the bank - but it doesn't have to. In today's landscape, there are many alternative financing solutions to take advantage of. From online lenders to peer-to-peer platforms, there are alternative options to provide the funding you need without the restrictions of traditional financing.
Alternative forms of finance extend your cash runway, give you the flexibility to remain agile, and allow you to take advantage of opportunities as they arise.
Let’s take a closer look at the many alternative forms of financing available to expand your company.
5 Alternative Forms of Business Financing
The modern financial landscape is far more diverse than traditional banks and their conventional lending methods. When you need to secure financing for your company, you have more options than you may realize.
Crowdfunding has been one of the hottest forms of funding in the startup world. Crowdfunding allows a brand to post its fundraising goals and share perks with an audience that, in turn, invests a small portion of the total funding needed. Crowdfunding can allow thousands of people with private investment funds - sometimes as little as $5 per donation - to contribute to a company’s growth.
Crowdfunding is incredibly powerful. With an appealing pitch and rewards for investors, thousands of people may choose to donate, which can drive efforts to astronomical success.
2. Peer-to-Peer Lending
An interesting variation of crowdfunding is peer-to-peer lending. This is also known as social lending and allows businesses to borrow money from other individuals and companies. Peer-to-peer lending may take the form of company partnership and often occurs as the result of a B2B matchmaking site where investors (Peer A) meet companies (Peer B) to enact a private lending exchange.
Peer-to-peer lending is a great way to meet private investors who share your company’s interests, goals, and passions and want to become a part of your operations indirectly.
Depending on your industry, winning a government grant for your work may be possible. A grant is a financial contribution from the county, state, or nation to support valuable work and fund its continuance.
However, acquiring a grant can be difficult; there is often a great deal of competition regarding which company will be granted one (no pun intended). The process usually requires writing persuasive grant proposals and winning over many other companies seeking the same grant.
4. Venture Debt
Startups that receive venture capital may still struggle to meet their financial requirements between funding rounds. Venture debt is often used to extend the startup runway to reach the next funding round. Lenders judge the strength of your venture capital investors when deciding to offer venture debt, assured that they will be repaid when your funding appears.
5. Merchant Cash Advances
Lastly, there are merchant cash advances. Merchant cash advances sell a portion of future sales. When your vendors have confidence in your company’s revenue stream, they may allow you to delay the cost of the resources you need to generate that revenue. Merchant cash advances are ideal for small and growing businesses that may be limited in other financing options.
Short-term financing through your merchants can enable greater control over your cash flow, increase ARR, and create room for improvements even when the budget is tight.
Merchant cash advances must be approved by the merchant and, often, by the merchant's financing partner. They will then examine the company's ability to repay before agreeing to offer a cash advance until your company thrives on good revenue and is ready to reciprocate.
Pros and Cons of Alternative Financing Methods
Knowing the alternative forms of financing and the pros and cons of each is an essential step to cash flow control and flexible finance management.
Crowd and Peer Funding
Crowdfunding and peer funding share several critical key features, along with similar pros and cons. In both cases, funding is not guaranteed. Great marketing can make crowdfunding or peer funding a success, but you are also relying on individuals in the market to decide to contribute funds on their own time.
Crowdfunding may only pay off if your campaign meets your minimum goal, while peer funding may be limited in usefulness depending on your available pool of peers.
Investment capital is lauded as the best type of business financing, but it comes at a cost: your equity. Every infusion of investment capital from a VC or angel investor is traded for shares of your company. While you are gaining capital to spend that will not need to be paid back, the actual payment for such investment is quite long-term.
Debt financing allows you to take control of your expenses and your debt through individual contracts. Unlike venture debt which expects to be repaid by your next round of funding, debt financing through services like Gynger allows you to select the desired terms for each contract separately.
Getting a cash advance from your merchants is among the better sources of alternative financing. A successful cash advance and repayment can bolster your vendor relationships and create flexibility in the future should your cash flow run short at an inopportune moment. Having vendors willing to lend can be a blessing, but be careful to only accept merchant cash advances with favorable terms that you can fulfill, lest you risk damaging your vendor relationships instead.
Take Control of Your Software Financing With Gynger
If your company is seeking alternative financing solutions to cover expenses or meet your goals, you can start by reducing the impact of your software contracts. Gynger gives you quick access to non-dilutive capital to fund your software and infrastructure expenses. This allows you to pay upfront and negotiate the best bulk price value without cutting deeply into your operating capital with each annual subscription renewal.
Our platform allows you to select your custom payment plan and spread out the cost of annual software over a more manageable and flexible schedule.
Get started with Gynger today.