Continuous growth requires funding—more funding than you may think. Unfortunately, getting this much-needed financial support is usually far from easy, especially with the long list of requirements demanded by traditional venture capitalists.
Even existing investors are often not ready to put in more money in between funding rounds (Series A and B), although they may do so in exchange for more equity. And once they do decide to invest more into your growing business, it would still take too long for the funds to get to you and keep your momentum going.
So, what can you do to get the funding you need? You require more staff, more equipment, more office space. You’re growing, but how can you continue to do so?
Alternative #1: Bank Loans
Bank loans are among the most common go-to funders of small to medium-sized businesses. They’re an ideal option for individuals with several assets because banks would usually ask for collateral before they approve a loan.
Among the most popular bank loan options are small business term loans, small business administration (SBA) loans, and business line of credit:
A small business term loan is a lump sum of capital to fund a growing business. If you’re an entrepreneur in need of funding, you can get between a couple of thousand dollars to $5 million—depending on the bank’s assessment of your repayment capacity.
SBA loans are guaranteed—at times, only partially—by the U.S. government. These are particularly designed for small businesses and they can take the form of a business grant, line of credit, or loan.
Using a business line of credit as a funding source is quite similar to using a business credit card. Like a credit card, there’s a limit to the amount that can be used or withdrawn. The good thing here, though, is that only the withdrawn or utilized amount will incur interest.
Alternative #2: Revenue-Based Financing
For business owners who don’t have that many assets to use as collateral—or you may not have assets to begin with—there’s another financing option: revenue based financing (RBF).
So your business is not yet at that stage where it can generate stable revenues and earn profit. That’s alright because you may still qualify to get funding through RBF.
But what is revenue-based financing? It’s a loan that uses a percentage of your monthly (or yearly) revenue as the basis of the repayment. Instead of aiming for a fixed repayment amount every month, you’ll only have to pay based on how much your revenue is for that month.
The repayment rates can vary, but it usually ranges between 1.5x to 1.8x of the borrowed amount over the loan’s life. Essentially, though, the higher your revenue for a specific month, the higher the repayment amount is for that same period.
One of the best things about revenue-based financing is the absence of dilution—you don’t have to give up equity. You will not have to give up shares of your company and risk getting into conflicts with the different views of investors down the road. With RBF, you’re not giving up control of the business and you’re still the one making the decisions.
You get to keep your vision and grow your business the way you see fit. Isn’t that what every entrepreneur dreams of?
Final Words of Advice: Choose the Right Funding Partner
Choosing the organization that will fund your dreams as an entrepreneur is challenging, but it can be easier. Remember that the funding partner you’ll choose will be with you on your business’s journey from the developmental stage till you achieve stable growth. It’s a business relationship that can either hasten your growth or slow it down.
It’s a good thing that there are revenue-based financing companies like Novel Capital, who go beyond the transaction and provide holistic support and guidance to entrepreneurs. You need someone that can assist you in understanding your bottom line better. Are operation costs too high? Are you still earning enough to actually generate significant revenue?
When it comes to funding, you need to look beyond the amount being made available to you. It’s also equally crucial to have a trustworthy partner that will provide sound advice on how the borrowed capital can be maximized to fuel long-term growth. Choose your funding partner wisely.