Business Finance: Top 4 Ways To Obtain Funding for Your High-Risk Business
Starting a new business venture can be both exciting and terrifying. One of the scariest parts is usually obtaining funding for your high-risk idea. There are many ways you can get the necessary funds to start your business, but not all will work out in your favor. However, this blog post will discuss four different proven successful methods with various companies and entrepreneurs.
Alternative Lenders
Alternative Lenders are not traditional sources of financing and instead finance ideas that banks may have been turned down. The most common type of alternative lender is a crowdsource funding company, which allows entrepreneurs to post their idea on the site in question and pitch it to potential investors. They can then offer shares or equity in return for the investment.
Alternative Lenders also include a peer-to-peer lending platform. This online service matches potential borrowers and lenders to provide loans at lower interest rates from traditional banks or financial institutions.
These Alternative Lenders have helped startups obtain funding from people within their network as well as investors who are interested in their business.
Since the Alternative Lenders are not as strict with credit, they can help entrepreneurs who may have high risk merchant accounts with bad or no credit scores to obtain funds for their idea.
The most common type of loans these businesses offer are unsecured personal loans that do not require any collateral from borrowers. However, these lenders also provide products such as invoice financing, a type of short-term loan that enables a company to pay for their inventory upfront.
Guarantor Finance
One way to pay for your new business venture is with guarantor finance. This type of financing secures a loan with the guarantor’s assets rather than yours. This is often an option for established businesses with little or no collateral and satisfying credit requirements.
The interest rate on this type of financing can be as high as 23%. It also has more stringent covenants, such as full repayment at any time after 18 months.
Asset-Based Finance
Asset-based financing is a type of business finance that provides funding for growth and expansion by using a company’s assets to guarantee loans. You can use this method when conventional sources such as bank lending are not an option or if there is uncertainty around how long it will take before cash flow from operations can cover loan repayments.
Venture Capitalists
A Venture Capitalist is a type of investor that provides capital to high-risk, high-return investments. This could include new or existing companies with the potential for significant growth and market share in their respective industry. In addition, the VC will play an active role on the board of directors for these startups, often providing valuable insight from past legal and business experience, guaranteeing a smooth business.
The VC will typically look for a share of the company, often between 30-40%, in exchange for their funding and expertise. They may also offer to be an advisor or mentor that can assist with fundraising efforts or other strategic matters. It is imperative that you know how to build a tear sheet for maximum success with investors.
A strong investor relationship with a Venture Capitalist can be worth its weight in gold, but it’s not easy to come by. To get your foot in the door and see if this is an option that might work well for you, start networking by attending startup events or conferences. Attendees are typically looking for people to provide their insight or experience, so you can get in touch with Venture Capitalists by offering your services.
Conclusion
The above four methods for obtaining funding are not the only ways to get capital, but they are the most efficient and effective. Hopefully this article has given you some insight into the various methods of obtaining funding and what they entail.