Small businesses have several options when it comes to securing working capital. From traditional bank financing and inventory financing to crowdfunding and grants, there is no shortage of resources for growing businesses to take advantage of. But, funding remains a constant challenge. Raising money through equity financing through venture capitalists or angel investors is the most common route, but it comes at the cost of diluting ownership. Fortunately, CPG brands have another option: non-dilutive funding.
Non-dilutive funding is a funding option that does not require you to give up ownership in your company. In this blog post, we’ll explore the benefits of non-dilutive funding for CPG brands.
What is non-dilutive funding?
Non-dilutive funding refers to any form of investment that doesn’t require the surrender of any portion of ownership of your company. It does not require equity and the investor does not gain any ownership stakes. Non-dilutive funding is most often used in the startup stages of a new business, although it can be used at any time. Forms of non-dilutive funding include:
- Tax credits
- Inventory financing
- Revenue-based financing
On the other hand, dilutive funding (also known as equity financing) refers to any type of funding where the business must sacrifice a portion of its ownership in order to secure capital.
Benefits of non-dilutive funding for small businesses
Non-dilutive funding is a great funding option for CPG brands looking to grow and expand without giving up ownership or taking on significant risk.
Non-dilutive funding is an attractive option for CPG brands because it allows them to maintain ownership of the company. This is a significant advantage over equity financing, which often requires entrepreneurs to give up a portion of their company’s ownership to investors. By keeping more control of your company, you can make decisions that are in the best interest of your brand and not just aimed at increasing shareholder value. This is particularly relevant if you have a long-term vision for your company or want to take a slower and more sustainable approach to growth.
Non-dilutive funding can also be a great way to build credit for your business. Whether it’s through a loan or a line of credit, taking on non-dilutive funding can help establish your brand’s creditworthiness with investors, banks, and other lenders. Having solid credit can help you access more significant funding in the future and make it easier to secure additional financing when you need it. This can be particularly crucial when launching new products or expanding your brand.
If you are a CPG brand looking to expand your distribution, non-dilutive financing can be an attractive option. With non-dilutive funding, you have the resources to secure strategic partnerships and expand your distribution network without having to give up ownership of your company. This can result in a larger customer base and increased sales for your brand.
Non-dilutive funding can also reduce the risk associated with equity financing. Equity financing leaves entrepreneurs exposed to the risk of dilution, which can significantly reduce the value of their ownership in the company over time. By using non-dilutive funding options like grants, loans, and crowdfunding, you can minimize that risk and preserve your ownership over the long term.
Diversify funding sources
Finally, non-dilutive funding allows you to diversify your funding sources. Relying solely on equity financing can be risky, especially when investors have significant control over the direction of your company. Non-dilutive funding options allow you to bring in funding from a variety of sources and minimize the risk of relying on one investor or a small group of investors.
How do you raise non-dilutive funding?
Unlike dilutive forms of funding, you do not need to strategically place your business in order to attract angel investors or venture capitalists. With non-dilutive funding, you take advantage of the different resources and programs offered by banks, government agencies, and so forth. You may work with investors or backers too but instead of sharing ownership or equity you can offer collateral instead.
Types of non-dilutive financing
There are several different types of non-dilutive financing to consider for your business needs:
- Loans: Whether you secure your loan from a bank, credit union, or online lender, small business loans are a great way to access the cash you need to grow your business. Term business loans should not require you to give up ownership or equity, but in some cases, they may require collateral.
- Grants: Grants are a popular form of funding that doesn’t have to be paid back. They can be difficult to find, but well worth the effort to apply. Grants may be found through government agencies, non-profits, and other businesses.
- Tax Credits: Businesses can take advantage of the many available tax credits to secure working capital for their business come tax season, without the need to surrender any ownership or control.
- Crowdfunding: Platforms like Kickstarter and Indiegogo offer new businesses a way to obtain funds via small contributions from many different people or organizations. Crowdfunding may have high upfront costs and expose product ideas, which could potentially cause someone to imitate your ideas. If you use crowdfunding, be careful and avoid equity crowdfunding, which is a form of crowdfunding that requires the surrender of a portion of your equity. If you simply need funding for inventory, there are better sources out there, which we’ll cover later on.
- Inventory financing: Inventory financing allows companies to maintain stock even without invoices or purchase orders. It often works by funding your inventory on consignment, giving you the flexibility to pay back your balance as you receive sales revenue. Inventory is typically used as collateral. Inventory financing can be obtained by banks. Traditional inventory financing methods can be costly, but luckily there are affordable sources available for inventory funding. Kickfurther is one alternative source for affordable inventory funding.
- Revenue-based financing: Revenue-based financing allows business owners access to instantaneous cash advances that are then paid back as a percentage of sales.
- Royalty-financing: With this type of funding, business owners receive money from investors in exchange for a percentage of the company’s future revenues. This is often limited to a certain period of time and/or a certain amount and does not require the surrender of any ownership or control.
Identifying Risk associated with Funding
While raising funding is an essential part of a CPG business, not all sources of funding are the same when it comes to the level of risk involved. Understanding the level of risk involved in different areas of your business and how various sources of capital match those risks can help you determine the best funding option for you.
The type of funding you use can have a major impact on your business’s risk profile. Generally, equity or dilutive financing is more risky than debt financing or non-dilutive options. And when it comes to inventory risk, it’s important to match the risk of your capital sources to the risk of the inventory. If you’re holding onto a large amount of inventory, the risk to your business is higher than if you have a low inventory level. In this case, it may be more advantageous to raise debt or non-dilutive capital, as it reduces the overall risk to your business while still providing the funds you need.
Another important factor to consider is the cost of funding. Generally, equity financing is more expensive than debt or non-dilutive options. This is because equity investors often seek a higher rate of return to compensate them for the perceived higher risk involved in equity investments. If you’re a startup or a growing business with a high-risk profile, it can be challenging to attract equity investors without offering them a higher rate of return. In this scenario, it may be more advantageous to explore other sources of capital, such as debt or non-dilutive financing, which can be less expensive and less risky.
How Kickfurther can help
Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.
No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. And by funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.
The need for funding can arise at any stage of business but is most common in the early stages. Startup and early stages can be the hardest time to get funding, especially while maintaining full ownership of your business. However, if you can get funding for certain parts of your business such as inventory or equipment, you can free up cash flow, thus reducing the need for other financing.
Interested in getting funded on Kickfurther? Create a free business account, complete the online application, review deals, and get funded in as little as minutes!