Choosing your non dilutive funding type
So you’ve read some posts relating to debt vs equity and you’ve decided to you want to move forward with debt.
But which debt option do you move forward with?
This blog post will dissect the debt options that you have have and try to guide you to the best debt financing options for you and your business.
Let's start with a quick breakdown of some of the options you have.
- Revenue based financing
- Merchant cash advance
- Tax credits
- Invoice factoring
- Line of credit
- Venture Debt
Each of these funding types has its purpose and effective deployment is crucial to get the most beneficial results.
Know your cash flow.
Depending on your business type and pricing models, your cash flow will look different as will your optimal funding type.
If your business cash flow is not evenly distributed and well balanced, options like revenue based financing are less optimal for your business.
Options like lines of credit or merchant cash advances will be more effective around those times of the year when your business is booming.
A business that is subscription-based and has constant and predictable revenue flow can be a great fit for revenue based financing.
A business with outstanding invoices that need to access capital now, should certainly look into options like invoice factoring.
Know your eligibility.
So much of non dilutive funding depends on variables related to your business's finances and therefore makes eligibility a more complex issue.
Venture Debt, for example, is a funding option that is based on a previous raise from a venture capital provider to determine the amount.
Invoice factoring might sound like a great funding option for you, but if you don't have any outstanding invoices, you cant access this type of financing.
Revenue based financing is obviously tied to revenue, and therefore only applies to revenue-generating companies.
Grants and tax credits while not tied to revenue, each have their own boxes that need to be checked in order for a business to be eligible to access them.
Where to start?
A great place for any business to start when looking for non dilutive funding is with grants and tax credits.
The simple reason for this is that neither of these options needs to be paid back and is essentially “free capital”.
After that, every business differs because of the eligibility factors laid out above.
For the vast majority of revenue-generating businesses, most of the above financing options will be available to you.
Revenue based financing is one of the fastest-growing debt financing options out there and it doesn't seem to be slowing down anytime soon.
In 2021 alone, close to 2 billion dollars was raised by over 30 Revenue based financing providers.
As always, there is no 1 size fits all when it comes to funding. The aim of the above was to help you think about your business type and what funding type makes the most sense for you. Always explore as many options as possible so that you can make the best decision.