It’s an exciting time setting up a business but as entrepreneurs strive to take their start-up to the next level they often encounter a major challenge in securing adequate funding. With uncertainty in the current economic climate traditional financing options such as bank loans and venture capital investments are harder to get and often are not suitable for start-ups or SMEs. Entrepreneurs may lack the necessary collateral, credit history or track record to qualify for business loans. Venture capital funding is highly competitive and typically demands a significant equity stake in the business. 

So how do you grow your business and source enough capital to drive that expansion? It’s time to look outside the box and seek alternative funding solutions that satisfy your business’s unique needs. Here are some solutions worth investigating -

1. Bootstrapping

Many start-up founders begin their journey by bootstrapping which involves self-funding their business using personal savings or revenue generated from sales. Some owners bootstrap by cutting costs, cutting back operations or looking for other creative short-term financing solutions. A good example is a company taking deposits for pre-orders of a product and using those funds from the orders to actually build and deliver the product. Whilst this option provides control and flexibility it may not be enough to sustain long-term growth or support large-scale expansion. It can also increase financial risk as a company may not be able to cover unexpected or emergency costs and it does place a limit on operations.

2. Angel Investors

Angel investors provide capital to start-ups or small businesses in exchange for equity or convertible debt. Along with financial support, these individuals often bring industry expertise and valuable connections to the table. Engaging with angel investors can be a good strategic move especially if you’re seeking mentorship and guidance. However, similar to venture capital funding, it can be difficult to secure and cannot be relied upon as a sole funding strategy. You are also diluting your shareholding in the early days of the business.

3. Invoice Financing 

Popular overseas, invoice financing has gained popularity in recent years but is still an underutilised resource for start-ups in Australia. It allows entrepreneurs to access working capital based on their outstanding invoices. Instead of waiting for customers or stakeholders to pay their invoices, business owners can sell them to a third-party finance provider at a discounted rate and receive a percentage of the invoice value upfront ranging from 70-90%.

This allows owners to access capital immediately upon making a sale to their customers, which would otherwise be tied up in unpaid invoices and ensures a consistent and steady cash flow to support expansion. It is also adaptable and can be used on a recurring or selective basis depending on the business needs. It’s particularly valuable for businesses who face unexpected expenses, seasonal fluctuations or are in a rapid growth phase. Strong cash flow is vital to support the growth of any business, especially start-ups.

4. Crowdfunding

Crowdfunding platforms enable businesses to raise from a large pool of individuals who each contribute small amounts. It’s a way to not only generate capital but it also builds a community of supporters who rally around the business concept. Crowdfunding requires compelling pitches and effective marketing to be successful. It’s also become more difficult in the current economic climate with the cost of living affecting many everyday potential investors.

5. Grants and Programs

It’s worthwhile exploring whether there are grants and government programs that are aimed at supporting your start-up or small business. These initiatives often focus on specific sectors or are targeting environmental or social impact causes. Securing a grant can provide much-needed financial assistance and access to additional resources however they can involve a lot of work to apply for and take some time even months to arrange.

The most appropriate source of funding to grow your start-up will depend on the stage your business is at but by exploring and utilising these different solutions, entrepreneurs can fuel their growth, drive innovation and achieve their aspirations of scaling their businesses to new heights.

By Angus Sedgwick, CEO of OptiPay