An Alternative to Debt
One of the main ways that businesses get funding for growth is by getting a business loan from a bank or by using business credit cards. These methods of financing growth have their advantages, but they have their drawbacks as well, such as interest rates that can be excessively high. Even when businesses prefer debt financing, they sometimes cannot get it. In such cases, some alternatives to debt financing are available.
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Venture Capital
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A venture capital firm is a company that invests in other companies that have high potential for growth. Unlike banks, venture capital firms do not issue loans. Instead, they actually purchase a piece of the company in question and become partial owners. Venture capital firms can often provide large amounts of capital for enterprises that cannot qualify for loans from banks. However, since doing so means a high risk on their part, they tend to be very selective about which companies they want to invest in. To get venture capital funding, be prepared to write an exhaustive and accurate business plan and make a very detailed presentation.
Rental and Leasing
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Instead of incurring a large amount of debt to purchase necessary property or equipment that you need for business, consider renting or leasing what you need. Although this may cost more over a long period of operation, payments in the short term are lower than what you would pay to buy and can be lower than the payments you would make on a financing loan. It is also much easier to qualify for rental and leasing than for a loan. Even though you may want to purchase these assets later, renting or leasing now can help you to save on capital during that important startup phase.
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Partners
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If you cannot qualify for a loan and you would rather not take the venture capital route, your best bet may be to find a business partner to get the funding you need. Even if your partner knows nothing about your business and would rather not try to help run your business, you may be able to convince him to become a limited partner. A limited partner is someone who simply invests money into a business and then shares the business profits with the other partner, who is the general partner. Even if partnership does not mean monetary investment, it can help as an alternative to debt financing if your partner can contribute vital skills and labor to the company. In this way, while an employee would require payment up front, your partner may be willing to work for free until the business becomes profitable.
Incorporation
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Another way off raising business capital without engaging in debt financing is by incorporation. This can mean turning your business into a Subchapter C or Subchapter S corporation. In this way, you can maintain your ownership of the company by holding a certain percentage of the stocks and then you can raise funding by selling the remainder of the stocks to investors.
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