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. Some options may require you to give up some ownership or pay high fees, which can leave you searching for more alternatives.
Non-dilutive funding allows business owners to get funding without giving up ownership. Keep reading to learn more about the meaning of non-dilutive funding and what exactly it is and how you can secure it.
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
The primary benefit of non-dilutive funding is that it allows you to maintain ownership and equity in your business. Dilutive funding options may grant you higher loan amounts, but at some point you’ll lack equity to give away in exchange for more funding. In addition you’ll always have to share ownership of the company, pay royalties, or hold up your end of whatever deal you made.
Another benefit is protecting the ability to be the primary decision maker for your company. When you share ownership, you have more opinions to consider. And depending on how dependent you are on the investors, they may overrule your vote when it comes to making decisions.
Non-dilutive funding can also be easily secured at any time, not just at the startup portion of your small business. For example, you can use this type of funding to launch a new product, expand into a new market, start a new marketing campaign, or secure a retail location. In some cases, it may come at a higher cost so you should try to secure the funding with an asset such as inventory or real estate if possible. Two examples of non-dilutive funding are inventory loans and unsecured term business loans.
Why you should consider non-dilutive funding
Non-dilutive financing is a great option for many business owners, whether you want to start a new business or expand an existing one. You should consider non-dilutive funding if you want to maintain ownership and control of your company and retain access to all of your profits. If you need funds for inventory you can easily take advantage of non-dilutive funding. We’ll cover the best non-dilutive inventory funding source a little later on.
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.
Keep reading for a brief overview of the different types of non-dilutive financing to consider.
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 don’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 does require 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.
Dilutive funding vs. non-dilutive funding
Dilutive funding is often pursued by entrepreneurs and business owners who are first starting out. Getting capital as a new business can be difficult, and so startup funds are often secured through the use of angel investors or venture capitalists.
However, funding your small business in this way results in the loss of ownership in your company right from the start. It’s important to consider what you might have to give up in exchange for working capital. Dilutive funding requires the surrender of equity, stock, or ownership in your fledging new business.
On the other hand, non-dilutive funding can be a much better way to secure working capital for your business. With non-dilutive funding, founders are able to maintain complete control over their company and their profits. When you have invested so much of your own time, energy, and resources into your new business idea, it’s understandable that you would not want to give up any control or ownership of your project or share any of the profits with others.
There are some disadvantages to the various forms of non-dilutive funding, for example the interest payments and fees that come with a business loan. However, non-dilutive funding is still a very common choice of business owners, and a smart financial decision in most cases.
Is non-dilutive funding right for your business?
Non-dilutive funding could be the ticket to helping your small business succeed and grow to scale. It’s easy to see why many business owners would prefer to use forms of funding that allow them to secure working capital without surrendering any ownership or control of their business. Non-dilutive funding is an especially great choice for eCommerce businesses and any company that has a need for instantaneous cash flow at various stages of business growth. For inventory funding, non-dilutive funding is the best option. You may be discouraged from inventory financing encounters you’ve had as traditional methods can be expensive and hard to qualify for. However, if you’ve ended up on this page, you’ve finally unlocked the secret for affordable inventory funding.
How Kickfurther can help
Qualifying and affording inventory financing is often where business owners encounter challenges. Created by an entrepreneur that once faced these two challenges trying to obtain inventory financing, Kickfurther was born. Kickfurther can help you get funding for inventory up to 30% lower than similar options.
Kickfurther is the world’s first online inventory funding platform that enables companies to access funds that they are unable to acquire through traditional sources. For companies that sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, Kickfurther can help. We connect brands to a community of backers who help fund inventory on consignment and give brands flexibility to pay that back as they receive cash from sales. With more than $100 million in inventory funded to date, Kickfurther can help you get funded within a day or even minutes to hours.
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. For affordable inventory funding, put the ball in Kickfurther’s court.
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!