Unlocking Capital: Innovative Funding Strategies for Entrepreneurs

Finding the funds to fuel your business growth doesn’t always mean taking the traditional banking route. There are many creative financing options available to small business owners like you. Explore innovative funding methods, from crowdfunding to revenue-based financing, and learn how to leverage these creative solutions to capitalize your business effectively. Creative financing solutions can ensure sustainability and growth without compromising your financial health.

Meet the Experts

John Bay

John Bay joined PayPal to become a Director for Global Merchant Lending 2 years ago after being an Executive with Bank of America. With nearly 20 years of financial services experience focused on small businesses, providing innovative solutions across all financial products (deposits, credit cards, lines of credit, term loans), he strives to help small businesses achieve their goals.

Penny Mickey

Dr. Penny Mickey is the owner and operator of the Memphis based gourmet popcorn business, Mickey’s Popcorn.  Penny worked with her husband to create a business that blends the nonprofit with the for-profit world. On top of amazing flavors like Oreo and Kentucky Bourbon Caramel, Penny has first-hand experience of preparing her business for the holiday season.

Chad Patterson

Chad Patterson is a business executive and strategic visionary, with 15+ years of experience in finance, sales, and marketing. Chad has successfully founded three ventures and is passionate about helping small business owners and entrepreneurs scale their ventures. Chad is also a business advisor with Accion Opportunity Fund’s Coaching Hub.

Innovative Funding Solutions for Small Business Owners

Small business owners face many challenges when running their business, from hiring to bookkeeping to daily operations. One of the most difficult challenges the business owners must overcome to succeed and grow is finding the capital needed to launch, sustain, and grow their ventures. Traditional funding options such as bank loans or personal savings are not options for all business owners, due to their history and personal circumstances. Even when traditional options are available to a business owner, these solutions often fall short. So business owners have to consider innovative and alternative funding sources for their business. Once a business owner understands the alternative financing methods on the market today and their nuances, they can make informed decisions to fuel their business growth.

Alternative Financing Myths

There are many myths and misconceptions about alternative financing options on the market today. Let’s explore these beliefs and learn the truth.

• Is Alternative Financing Safe? Many business owners assume that alternative financing always comes with hidden fees or predatory practices. Certainly some non-traditional lenders do take advantage of small business owners in need of fast cash. It’s important to identify potentially predatory lenders before you take a loan with them. While it’s true that some lenders are less than transparent, there are many reputable types of alternative financing options for small business loans including crowdfunding, grants, CDFIs like Accion Opportunity Fund, some revenue based financing providers, and peer-to-peer loans.
• How Difficult is it to Get Alternative Financing? It depends on what type of financing you are working towards and how organized your finances, your storytelling, and your network are. For example, if you have a well-developed story for your business, a plan for how you will use the money you are applying for, and your financial documents are ready to go, applying for a business loan or grant should be a relatively low lift. Crowdfunding and peer-to-peer loans typically require you to market yourself and your business to potential funders in your network broadly, which means lots of networking and storytelling. It all depends on the strengths of you and your team, as well as your level of financial and marketing organization.
• How Do I Know I am Ready to Seek Financing for my Business? Entrepreneurs often underestimate the financial organization and preparation needed to access alternative funding. Depending on the type of alternative financing you apply for, you may be asked to provide your personal and business tax returns, your business’ financial statements, a business plan or capital use plan, financial projections, written or recorded business pitches, photos, and other marketing materials. In addition to preparing these documents before you apply, you need to understand your credit report, its strengths, and its weaknesses. Be ready to tell the story of your business from many angles, including the story of the people, products or services, customers, history, and finances.

Exploring Innovative Funding Options

There are hundreds of ways to fund a business, but these are the most common creative funding options for small business owners. Let’s explore their pros and cons to help you determine how they can work for your business. Before you start your alternative financing journey, be sure you know the questions to ask of any lender or fundraising platform to fully understand the repayment process, fees, timeline and APR.

Crowdfunding

Crowdfunding platforms allow you to raise funds directly from supporters who donate to your campaign. Successful crowdfunding efforts typically have compelling stories that attract backers. Many campaigns incentivize donations by offering either rewards or equity in return for contributions.

• Best For: Businesses with a strong brand story or community appeal.
• Key to Success: A clear pitch, professional visuals, consistent campaign updates, a large personal and professional network, a robust campaign marketing plan.
• Examples: Popular crowdfunding platforms include Kickstarter, IndieGoGo, GoFundMe.

Revenue-Based Financing (RBF)

Revenue-based financing is a unique type of loan because of how it is repaid. You receive upfront capital in exchange for a percentage of future revenues or sales. Unlike traditional loans, repayments adjust based on cash flow.

• Best For: Companies with steady revenue through their payment processor (credit card sales) but limited collateral. Typically best for businesses that have a strong relationship with their payment processor.
• Key to Success: Demonstrating consistent earnings via your payment processor.
• Examples: PayPal and many Point of Sales (POS) Systems or payment processors offer revenue-based financing, also known as cash flow loans or merchant cash advances.

Grants for Small Businesses

Grants are a type of funding that does not require repayment. Most grants have a theme or specific requirements like certain groups or business types like women-owned or minority-led ventures, industry types like restaurants; or localities like City of Atlanta.

• Best For: Any business willing to commit the time necessary to find and apply for grants.
• Key to Success: Meeting eligibility criteria, telling a compelling business story, and adhering to deadlines.
• Examples: HelloAlice, Accion Opportunity Fund, industry organizations, and local government agencies.

Peer-to-Peer Lending

Online platforms connect small business owners with individual investors willing to fund loans at negotiated rates.

• Best For: Entrepreneurs with a strong credit history and moderate funding needs.
• Key to Success: Presenting clear repayment plans and business viability.
• Example: Kiva.org, Upstart.

Choosing the Right Option for Your Business

Before you apply for any form of capital, be sure you have selected the right option for your business. Every form of entrepreneurial financing has its pros and cons, just like every business has its unique needs. When deciding which innovative funding path to take, consider these strategies:

• Analyze Your Needs: How much funding do you require, and what will it be used for? Are you seeking long-term growth capital or short-term cash flow relief? Consider creating a decision matrix to analyze your financing options versus your business needs.
• Research Your Options: How does each of your options for business capital work? Are you comfortable with each option’s details, requirements, and processes? Be sure you understand the pros and cons of all your funding options before you proceed.
• Evaluate Your Business Structure: Does your business qualify for grants tied to specific structures, like social enterprises or hybrid models?
• Assess Sustainability: Ensure the funding option supports long-term financial health rather than creating immediate, unsustainable debt.
• Calculate Your Potential ROI (Return on Investment): Is the juice worth the squeeze? Make sure that any grant or loan opportunities have the potential to provide a significant return on your investment of time and money to complete those applications. Check out these tips on crafting compelling loan and grant applications.

Common Funding Application Challenges

You may have to overcome some hurdles as you work to secure innovative funding for your business. Here are some tips for overcoming these common challenges:

Demonstrate Financial Credibility

Lenders and investors use your application to determine the likelihood that you will repay their loan. You can strengthen your financial credibility by:

• Improve your personal and business credit scores.
• Organize accurate financial records and forecasts.
• Apply for loan amounts you can comfortably repay.
• Develop a clear repayment or growth plan.

Craft a Winning Story

Storytelling is essential for securing many forms of alternative funding, like crowdfunding or grant applications. A compelling narrative should include:

• Your mission and values. Be sure to share any relevant personal stories or anecdotes.
• Specific ways funding will drive impact or growth. Let them know how you will serve customers, investors, or supporters better with this funding.
• Authentic personal touches that connect with your audience. Videos and photos, if permitted, are a great way to complement your story.

Tell your financial Story

It’s not enough to share the history of your business. You must also be prepared to tell the financial story of your business through financial documents like tax returns, financial projections, plans for fund use, and your financial statements. Be familiar with these documents, even if you have an accountant. You might have to answer questions about your documents as part of a grant or loan application.

Be Persistent

Grant applications, in particular, can be competitive and time-consuming. Save previous application materials so you can refine and reuse your pitch over time. This will make future applications much easier in the long run.

Practical Tips for Successful Applications

If you want to succeed in your funding applications, you need to be focused and well prepared. Follow these steps to improve your chances:

Know Your Numbers

• Understand your cash flow, revenue projections, and funding needs.
• Prepare a specific ask, e.g., “I need $10,000 to invest in automated machinery that will increase production by 20%.”

Organize Your Documents

• Keep financial statements, tax records, and business plans readily accessible.
• Update information regularly to align with current goals.

Personalize Applications

• Tailor each application to the specific audience. Be efficient by reusing materials from previous applications, if you have them, but be sure your application speaks to the goals of the organization to which you are applying.
• Emphasize how your business aligns with the goals of the program or lender.

Take the First Step Toward Creative Financing

The right business funding strategies for your business aren’t always obvious. But if you do the research and consider your options and your business needs, you will find the best option for you. Innovative funding options can provide tailored solutions that align with your business goals and values. Whether you are exploring crowdfunding, grants, or revenue-based financing, preparation and persistence are the keys to success.