Non-dilutive funding is a type of funding typical among business owners not willing to give up ownership of their company. Non-dilutive funding offers an alternative to equity funding, which includes giving up part ownership of your company.
We’ll be providing you with the ultimate guide on non-dilutive funding. We’ll go over the wide range of funding types and when you should consider choosing each type. Here’s how you can start financing your business with non-dilutive funds.
What is a Non-Dilutive funding
Non-dilutive funding is any funding that doesn’t give away ownership of your company. Giving away equity is part ownership of your company, so that isn’t non-dilutive. Upcoming businesses should be aware of different types of funding and build their business accordingly.
There are various types of non-dilutive funding. Some investments require you to pay the loan back, and some don’t. Generally, non-dilutive financing gives you more flexibility to grow your business. Investors focus on keeping your business sustainable. With dilutive funding, investors want a large payment, which can restrict your business vision. If your business is booming in the long run, then you’ll be able to make a much larger profit due to having full ownership.
Types of Non-Dilutive funding and which one you should choose
To successfully fund your business, you must be aware of the kinds of non-dilutive financing and select the one that best fits your business. The success of your business, the market you’re in, and your brand’s popularity are all factors that play into what type of non-dilutive funding you should get.
When choosing which type of funding you want, you should also decide how risky you want your investment. Some funding options will put you in debt, which means you’ll lose money if you fail. If you put your assets up as collateral, then that’s even riskier. Keep this in mind when deciding which type of investment to choose. Below, we’ll go over the various kinds of non-dilutive funding to fund your business.
Grants are funds that organizations award to businesses. These organizations can be government or privately funded. The organizations that distribute grants are doing so for a committed cause. Some examples of these causes are scientific research, environmental protection, and rural business. Grant awards typically don’t require you to pay the money back, but they may require you to report back on how you used the money. The risk for grants is low, but it depends on how you approach the application process. If you decide to pay a grant writer, then you’re risking the cost it takes to hire them.
You should think about getting a grant fund if your company meets the criteria of the grants that are available in your area. You can search for grants and find one that applies to your business.
To apply for a grant, you must go through a rigorous application process. You may even need to hire a grant writer to apply for the funds. A grant writer will research the need and write a detailed paper that explains why you’re the best candidate for the grant award. If you’re applying for a grant focused on solving a problem, you must provide a solid solution based on evidence and practicality. If the organization awards the investment to businesses in need, you must show that your business has created jobs and serves your area.
Bank loans are cash payments given to another party that they must repay by a specific date. When you repay a bank loan, you have to pay more than the original loan due to interest. This type of funding is riskier because you risk losing money in the process. If you put your assets up for collateral, you’ll lose those if your business fails before you can repay the loan.
You should get a bank loan if you fail to get an investor interested in your business. If you’re operating in a niche that doesn’t get much attention from funding organizations, then a bank loan may be for you. Consider this option if you have steady demand and attainable goals in a promising market.
When applying for a bank loan, you must check to make sure you’re qualified. Banks will look for a high credit score. Your credit score determines how reliable you appear at paying back the loan. Your business must also have a steady flow of income; ifyou can show that you already have success, then the bank will be more inclined to provide you with a loan. All bank loans require you to have a well-structured business plan. The bank will review your objectives and either approve or deny it based on how realistic it is.
Licensing and Royalty Financing
Royalty financing is a type of investment that’s paid back by future earnings. The investor will invest a certain amount into your business, and you’ll pay the loan back through royalties on your company’s revenue. When working out the contract with the investor, this type of investment allows for flexibility. There are no minimum payments or conditions that come with other investment types. These conditions make this type of investment less risky than others. These loans don’t put you in debt as a traditional bank loan does.
If you have a well-established company, then royalty financing will work well for you. With a decent revenue stream, you’ll be able to efficiently pay off your royalties while still maintaining enough revenue to support your business. Royalty financing is also a good option for companies that can increase their prices without losing customers. If you have to pay a percentage of your revenue over five years, then you may have to increase your prices to make up for that.
Angel investors and private equity firms will be able to discuss royal financing with you. Investors will be looking for businesses with consistent revenue and high-profit margins. They look for these factors because it provides a lot of flexibility when discussing the loan details.
Tax credits reduce the amount of taxes that you pay. Governments will often offer tax credits for businesses that dedicated their time to helping society at large. Some examples of these acts include fighting climate change and scientific research. Tax credits are similar to grants in that you don’t need to repay them. If you apply for refundable tax credits, you receive a cash payment if the credit is more than what you owe in taxes. Suppose you receive a refundable tax credit of $2,500. If you owe $2,000 in taxes, you’ll receive $500. If that tax credit were non-refundable, then you wouldn’t receive any money. Tax credits come with no risk as you don’t have to repay anybody; you just pay less in taxes. You don’t lose anything in the process.
Research tax credits that your government offers and see if some apply to our business. Various tax credits focus on different industries.
In the United States, you must complete Form 3800 to receive your tax credits. You then attach that form to your tax return. There are also forms that you connect to Form 3800, depending on the tax credit you are receiving. Unlike grants, you don’t need to compete with other businesses to receive the credit. As long as you qualify, you can receive the credit.
Crowdfunding is a type of fundraising that consists of a large number of small donations. Businesses searching for crowdfunded investments usually network through social media and crowdfunding sites. Crowdfunding often occurs here because of the shareability the sites offer. Crowdfunding allows you to pitch your ideas to the general public, not just venture capitalists. Crowdfunding may come with some risks depending on your business situation. If you’re a startup that relies on crowdfunding to get started, you risk losing the money that you already invested. You may have developed a sample product and paid for advertising to attract investors. If crowdfunding fails, then your investments will go to waste.
If you can gain a large following or already have one, then consider crowdfunding. Take advantage of your popularity and pitch your idea to your followers. Crowdfunding is also a viable option for startup businesses. If you’re still at the beginning stages of your business, you can post your business plan on crowdfunding sites to gain investors. Entertainment products are popular among crowdfunding sites. These products typically attract a lot of investors. If you orientate your business towards entertainment, consider pitching your idea on crowdfunding sites or social media.
To get started with crowdfunding, find all the sites that allow you to post your business. Some websites require specific criteria, so research which platforms best fit your business. You should also market your brand on all social media platforms. Advertising is essential in gaining investors. The more people that see your business plan, the more investors you’ll get. As long as you have an attractive brand and a solid product or service, you can start crowdfunding your business.
Non-dilutive funding is a fantastic option for businesses that need funding but still want to control their business. Knowing the many different types of funding will allow you to choose the right funding option for your situation.
Grant awards are funds that organizations give to businesses that work towards a cause that helps society. You can search for grants in your area and find one that fits your business. These investments are great because you don’t have to pay the fund back as you would with a loan. You usually have to go through an application process to persuade the organization to award you with the grant.
Bank loans are investments that you need to pay back with interest. If you’re operating in a well-defined market and have a realistic business plan, then bank loans are for you. Banks will review your strategy and check your credit score to see how reliable you are.
If you have a steady flow of income, then royalty financing is a viable funding option for you. Royalty financing means that the loan an investor lends to you is paid back through your company’s future revenue. High-profit margins are also attractive for this type of funding due to your ability to raise your prices to make up for the loan.