4 Types of Non-Dilutive Funding
One of the most challenging aspects of being a business owner is getting the proper funding to keep growing. This article will go over four of the most common non-dilutive types of business funding: crowdfunding, loans, grants, and revenue-based financing. Keep in mind that each of these options has its own benefits and drawbacks, so be sure to do your research before deciding which one is right for you.
Crowdfunding is a popular financing method that involves raising money from a large number of people, typically through an online platform. One of the main benefits of crowdfunding is that it doesn’t have to be directly repaid — although it’s customary to offer your funders some sort of reward, like early access to your product. However, it can be challenging to do correctly, which makes it a bit unpredictable. Crowdfunding relies on trust and brand credibility, and you need to have a large-enough following who are willing to give you money to pull it off.
Taking out a loan is perhaps the simplest way to get non-dilutive funding, but it’s important to keep in mind that this option can come with some risks. If you take out a loan from family or friends, for example, you could damage your relationship if you’re unable to repay it. Having issues repaying a formal loan from a bank can be even worse. Plus, qualifying for an adequate loan can be difficult — you need a great credit score and put up a large asset as collateral, which not everyone is able to do.
Grants are one of the most sought-after types of non-dilutive funding, and for good reason: they never need to be repaid! Grants can come from governmental or non-governmental organizations, and are often given to specific companies who serve a particular mission. The downside of grants is that the application process can be tedious, and they often require giving period updates on whether you’re achieving your targets. Finally, you may not immediately receive grant money after you’re approved.
Revenue-based financing is a type of non dilutive funding that’s somewhere in between traditional loans and equity. This method involves utilizing a pre-agreed percentage of your recurring revenue in exchange for capital. This method is ideal for companies who have large, reliable revenue streams, but need quick access to cash.
There are many different types of non-dilutive funding available for businesses, each with its own set of pros and cons. It’s important to keep in mind your company’s growth goals, recurring revenue amount, and how quickly you need the capital when choosing which one is right for you. With careful consideration, you should be able to find the perfect method of non-dilutive funding to help your business reach the next level.