6 Financing Models To Fund Your Startup

6 Financing Models To Fund Your Startup

When startups need money to grow, options can be overwhelming. Capital comes in different forms - It boils down to which one makes the most sense at that moment in time based on your startup's needs. Traditional loans can sometimes require one or more years in business and need tangible profits to be shown when startups don't make any money within their first few years. 

Because there's no one path to success, we outlined some alternative routes a startup can take to see a successful future. Some may be tried and true, while others could surprise you. 

Try your network 

Finding early funding is tough, but there might be someone within your friends and family willing to invest in your ideas. Borrowing money from people you know can mean less red tape, but it bears noting that borrowing money from friends and family can put a strain on relationships if someone can't get repaid. 

Give crowdfunding a shot 

Starting a crowdfunding campaign could benefit the company if you do it correctly. Many businesses have started with a simple idea; before they know it, they've raised millions of dollars because people believe in the product or service. And because of this, the business owners have a lot more freedom than being beholden to stringent rules at first to keep their crowdfunding investors happy with the promised perks. 

Do your homework and see which platform works best for what you're trying to accomplish because there are a variety of options that aren't Kickstarter or GoFundMe. Republic is a great option if you’re an early stage startup and want to launch a crowdfunding campaign.

Promote your campaign aggressively. Make sure you target specifically the people interested in whatever you do. If they're into it, there's a high chance they'll share the campaign with others in their networks who think similarly. Make sure social media knows what you're doing. 

Let the government pay for it

There are my government incentives available for startups. Ever heard of the Research & Development Tax Credits?

If you're a startup either creating something new or improving an existing technology, there's a solid chance your company is eligible. And because of that, the money you can get back in tax credits can be a significant game changer. Check out one of our many articles on this tremendous business opportunity here. There are multiple business grants, too, some for every industry, from health, science, or tech.

Get your tax credits financed

One option you may not have considered, if you’re taking advantage of either the R&D tax credit, or the Employee Retention Credit, is to get these financed. These credits can be extremely beneficial for your business, but sometimes it can take several months for you to receive your credits. Some special businesses (like TaxTaker) will advance your credit so you can get your credits converted into cash and use them ASAP.

Go for a business loan 

A business loan will be more of the traditional route, and you'll need all your ducks in a row. They'll ask what you plan on doing with the money down to the expenses or how they'll be used for the business's future. 

Some people go the bank route, which is the most common. Some microlenders and online lenders specialize in helping startups with business term loans, which help pay for one-time investments into the business.

If you’re looking to go the loan route, you should also consider venture debt. This is a type of loan offered by banks and other lenders specifically for early-stage, high-growth companies with venture capital backing. The amount of venture debt available is calculated by the amount of equity the company has raised, with loan sizes varying between 25% and 50% of the amount raised in the startups most recent equity round. Companies like Silicon Valley Bank can be a great resource if you’re thinking about going the venture debt route.

Hit the jackpot with an investor

Every startup dreams of getting an angel investor to fund its vision - but realize that if you land one of these big fish, they will want a slice of the company. If their investment pays off, they've got a stake in the company's future and can help make business decisions – and get a percentage of the profits should you sell the company. 

And then there are the venture capitalists. Venture capitalists are private investors offering startup financing, and these lenders are partners in limited partnerships (LPs) and invest in one venture capital fund. If this group backs you, they'll also want a stake in equity because they believe the idea is valuable. As a bank wants, investors expect all those details, working capital, and cash flow. They'll also want to know where your product or service plays within the market, too.

Our team of pros has worked with various companies doing super cool things, and we'd love to help you find the best route that helps you live your dreams, from selling streetwear to creating the new SaaS breakthrough.

If you're considering finding avenues to help fund your startup, TaxTaker is here to help.

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