Good news! You don’t have to give up equity to finance a growing startup.
By Brittany Hodak (Co-founder, ZinePak)
Like many bootstrapped businesses, one of the biggest challenges ZinePak faced in our early days was cash flow. My co-founder Kim Kaupe and I financed the company from our own savings and quickly became pros at shifting balances across multiple personal credit cards — sometimes as many as six cards at a time!
Kim and I made the decision to keep 100 percent of our company’s equity for as long as possible to maintain creative control, so we started looking for alternative methods of financing our growth. Manufacturing is a major part of our business, so we needed to have the spending power to make six-figure purchases in any given month to buy raw materials and production supplies.
We quickly became frustrated with the process of applying for business credit cards. Although we both had excellent personal credit, we were young and our business was unproven. In the first year, no credit card company offered us more than a $10,000 spending limit. Then one day, someone suggested we try applying for a charge card. I had always erroneously assumed that charge cards and credit cards were the same thing. It turns out, the similar-sounding tools are very different indeed.
Charge Cards Work…
Unlike a credit card, charge cards offer much higher lines of credit that must be paid back in a shorter period of time. For our purposes, this was essentially like an advance on payment from our vendors or a short-term line of credit.
Our first charge card was instrumental in helping us grow our business. Our initial spending limit was around $60,000. Where we had previously been handicapped by our small initial investment, waiting for a client to pay us for Project A before moving on to Project B, we could now afford to work on three or four times as many projects simultaneously.
Something as simple as the introduction of a charge card was truly transformative for our business: We grew 350 percent in less than a year.
… So Reap the Benefits
Plus, paying vendors via charge cards instead of cash is advantageous because of the rewards you can receive. In our first year using the card, we charged more than $1.5 million, which we cashed in for great rewards like travel, office equipment and gift cards.
Three years later, we still put nearly every dollar we spend on charge cards, ranging from rent to office supplies. Without these tools, I’m confident we would not have been able to grow to our current size without taking on outside capital.
Loans and Lines of Credit
In addition to charge cards, there are lots of other ways to finance your startup without offering equity that could be a perfect fit for your small business. One great option is with loans or lines of credit. Most banks have programs designed to help small business owners grow. Many of these programs are backed by the SBA. Your business banker (or your personal banker, if you don’t have a business banker) will be happy to point you in the right direction.
Welcome the Crowd
Crowdfunding is another alternative to consider. (Bonus! Making potato salad is not a requirement for crowdfunding campaigns.) The beauty of crowdfunding is that it helps your audience feel much more engaged with your company and gives you an enormous pool of consumer information to tap in to. It’s a great way to finance your expansion and get excellent pointers from your target market at the same time. Although crowdfunding isn’t typically a sustainable model long-term, it can be a great way to help boost your cash flow to help finance a project or idea.
Be Wary of Giving Up Equity
Do your homework before giving up any shares of your company because few things in life are as difficult (and expensive) to get back. Whether you opt for a charge card, line of credit, crowdfunding or another non-equity alternative, these options can be game-changing for your company without removing you from the driver’s seat.
This post originally appeared on Startup Collective.
Photo credit: Lisa S. via Shutterstock.