Capital is the lifeblood of any business. And without a steady flow of capital, any business established for the purpose of turning a profit, will soon wither and die. In the lifecycle of a most small businesses, there are two key points at which funding is most necessary - during the startup or launch phase and during times of growth or scale-up. For 2019, there are several new trends in business funding that are both innovative and responsive to the needs of entrepreneurs during launch and growth phases.
Statistics show that in the launch phase, most startups and small businesses are bootstrapped, using capital from personal savings, retirement accounts, credit cards or friends and family. Other funding sources typically include bank loans, and to a much smaller degree, venture capital or angel investors. In recent years, crowdfunding has emerged as a strategy for funding startup or launch phases. To support growth or expansion, most businesses have traditionally relied on funding sources such as bank loans, lines of credit, or in some cases, invoice factoring.
In today’s innovation-driven environment, new business funding options that are more responsive to the needs of founders and entrepreneurs, are emerging. Below is an overview of some of the new trends in business funding that could gain traction in 2019 and beyond.
- Peer-to-peer (P2P) lending: This is a relatively new business funding model through which financing is funded by investors, rather than a single, direct lender. A peer-to-peer business loan is a type of financing funded by investors instead of one direct lender. P2P lenders underwrite borrowers but don’t fund the loans directly. You can check out various P2P lenders here.
- Microfinance: This type of funding first emerged as a means for entrepreneurs in emerging economies to access business capital. Microfinance is a term used to describe small loans made to entrepreneurs, usually through a platform that allows individuals to invest as little as $25. Kivais one of the world’s leading microfinance facilitators.
- Revenue-based financing: A growing number of firmsare offering expansion capital through flexible business loans that are paid back based on a portion of monthly revenue.
- Venture finance: Some venture capital (VC) firms are upending the traditional Silicon Valley financing model by offering venture financing. Through this model, a VCoffers entrepreneur-friendly loans to fund growth initiatives.
- Marketing-focused funding: Clearbancis the pioneer in this innovative approach to growth funding. To fund business growth, the company provides capital to fund digital ad spends so growing companies can acquire more customers and drive revenue growth.
- Government-funded capital: Cities and states that are outside of Silicon Valley or other traditional startup hubs are increasingly offering startup or growth funding as a way to attract new businesses or retain firms that want to expand. Through these initiatives, a government agency--or a quasi-governmental agency--offers zero- or low-interest loans, business grants or in some cases, venture capital with a below-market equity expectation. Some states, and even countries, are also offering these types of incentives.
- Accelerator-based funding: While many startup incubators and accelerators offer investment funding in exchange for a small portion of equity, the Founder Institute (FI) and Loyal VCare re-inventing this model. Through this pilot partnership, the Founder Institute--a global pre-seed startup accelerator--and Loyal VC are offering a guaranteed $10,000 to all founders who graduate from FI chapters in San Francisco and New York City. Top performers then have an option to secure up to $200,000 in follow-on funding through Loyal VC. This innovative approach allows founders to focus more on growth and traction, and less on raising funds.
These are just a few of the newer ways in which founders and entrepreneurs are accessing funding to launch their startups or grow their existing businesses. If you’re an entrepreneur in need of startup or growth capital, be sure to explore these emerging business funding models to find the approach that best suits your needs.