When you’re poised to scale, but short on cash, there are few options:
- Sell assets.
- Sign for a high-interest loan.
- Give up equity in your business.
None of these options are particularly appealing to cash-strapped founders, especially when they feel backed into a corner by investors hungry for a piece of their pie. But before you cave to debt financing and equity deals, there’s another option: non-equity capital.
In contrast to venture capital funding and angel investors, non-equity funding is a way of raising money that doesn't require you to give up control or sell shares in exchange for working capital. With non-equity funding, a founder gets funds to scale and keeps control of their business. A real win-win. As with all types of financing—save for options like crowdfunding—the funds will need to be repaid at some point. Other forms of non-dilutive (non-equity) capital include bank loans, government grants (or voucher programs), and royalty financing.
Non-equity funding is attractive to business owners because it allows them to keep 100% ownership over the companies they’ve invested blood, sweat, and tears into (not to mention their own hard-earned money).
Why would founders want non-equity capital over VC money?
Using non-equity capital, founders can keep their business true to their original vision and brand values. Investors may not have quite the same passion or expertise in your industry as you do. Instead of giving up equity, founders can still grow while avoiding investors who want to make a profit no matter the cost. You could even go a step further and partner with a company like Clearco to keep funding your marketing, inventory, and other operational activities. With access to non-equity capital, founders can finally stop worrying about running out of money during those precarious scaling stages.
Sadly, non-equity funding does come with its drawbacks. Some forms of capital require you to pay upfront, and the amount given could be less than what a venture capitalist may offer in exchange for taking over a portion of your business. Because the amount may be slightly less up front, scaling, living comfortably, and making a profit could take a fair amount of time.
Today, non-equity funding is more popular than ever, especially for founders who can't afford to fully bootstrap their businesses. The US alone produces more startups and unicorns each year than any other country. Sadly 90% of all startups fail, with cash flow being cited as the number one business challenge. Accessing non-equity capital is important for founders who want to grow their businesses before being stymied by cash flow woes.
Who gives non-equity capital to businesses?
1) Banks don’t require equity in order to give out loans to businesses and individuals. But from the bank's perspective, it’s risky to fund new and untested business ideas. If you plan on going the bank-funding route, come prepared with a good credit history and pay close attention to the interest rates, fees, and repayment structures.
Bank funding options include:
- Debt financing
- Lines of credit
- Credit cards
2) Alternative lenders are private firms outside of banks. In some cases, they may be able to use A.I. to make funding decisions. This provides a competitive advantage to non-bank lenders, as funds are more accessible to businesses and startups that show strong business potential.
Alternative lending options include:
- Revenue based financing models
- Debt financing
- Credit cards
3) Crowdfunding websites are another option that allow businesses to reach audiences via platforms like Kickstarter and Indiegogo. These platforms help founders create awareness on their products and services before they officially launch. Founders can pursue both equity and non-equity crowdfunding.
How businesses can get non-equity capital fast
As with most research, the internet is a wonderful place to start learning about non-dilutive funding options. If maintaining full control and ownership of your business aligns with your future vision, we recommend comparing the different revenue-based financing options for your company. Be sure to assess all the different requirements before applying; for instance, whether a high credit score is required, and whether or not you meet minimum profitability requirements. Some of the most successful founders in the world have multiple sources of funding, and there's no reason you can’t have the same.
Clearco provides e-commerce capital so be sure to check out our no-obligation qualification process that takes less than ten minutes to complete. Simply connect your accounts to prove business viability and get a bird's-eye view on your revenue projections for the next few months. Once you submit your data you can get invaluable feedback on your sales and marketing initiatives, as well as get funded. Zero equity required.
Thinking about taking equity-free funding for your business?
See how much you qualify for with no commitment.GET FUNDED TODAY