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8 strategies to fund your new business

Jennifer Lonoff Schiff | Nov. 4, 2014
Entrepreneurs and small business experts share their advice on the best ways to raise money to finance a new business or product.

4. Run a pre-sale. "After creating the Bare air-free baby bottle concept and showing it around, many suggested I try crowdfunding to fund my venture," recalls Priska Diaz, founder & CEO, Bittylab. However, "as innovative as my idea was, it didn't get funded."

Discouraged by her Kickstarter experience, Diaz decided to try doing a little crowdfunding on her own website, hosting a presale -- and advertising it with modest PR funds. "This way, I benefit from the traffic; I keep 100 percent of the funding; and I could pass the savings along to potential customers," she explains.

The result: "At the end of the presale, I had 10,000 newsletter registrants, 8,000 unique visitors per month, viral PR and raised $50,000, which paid for inventory."

5. Consider a peer-to-peer lending site. Peer-to-peer lending sites such as Prosper allow entrepreneurs to borrow up to $35,000. However, loan rates vary and can be as high as 34% APR for borrowers considered a credit risk. (At the time of this writing, the lowest APR for "best borrowers" was 6.73%.)

6. Take out an alternative small business loan. "An alternative small business loan is [a] quick, simple alternative to a bank loan," says Eduardo Herrera, chief communications officer, Liberty Capital Group, which provides small business funding. "Because these types of loans are primarily revenue based and require as little as three months of financial activity, potential borrowers can easily overcome common hurdles such as credit and time in business."

How does it work? "Collection is automatically drawn from the merchant's checking account in daily or weekly micro-payments, freeing up working capital and alleviating the end of the month cash crunch," he explains. "With terms ranging between 3 to 24 months and renewal of credit mid-term, businesses consider it a line of credit."

The main caveat: these loans can cost more than a traditional bank or SBA loan.

7. Join an accelerator or incubator. "Look up startup accelerators [or incubators]," suggests Cox. Most give between $20,000 and $120,000 cash or convertible debt for a small percentage of equity in your company. They are all over the world, but [many are] concentrated in the U.S."

Being part of an incubator "is a great way to learn about how to grow a business, and most importantly for new entrepreneurs, to learn how to approach and pitch investors," says Rick Morrison, CEO, Comprehend, which offers cloud-based clinical data insights tools that improve the way clinical researchers access, understand, explore and analyze data. "We took investment from Y Combinator in January 2011. Besides the three month program where we listened to insightful off-the-record talks by established entrepreneurs and VCs, they provided perspective and advice throughout the several years since," he explains.

 

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