How to Access Startup Capital Without Equity Dilution or Debt

Most startups cannot scale up through revenue alone and seek funding opportunities to secure capital. Many startup founders amass debt and dilute their business equity to attain capital necessary for growth, not realizing more efficient funding solutions are available. To help your innovative enterprise expand and become more competitive in the market, we at Easly have provided insights into how to finance your startup.

Difficulties with Startup Financing

Raising funds for growth projects is challenging for any business, particularly for startups. For one, these smaller companies often do not have the credit history necessary to attain traditional loans from the bank. Additionally, adverse economic effects at any given time may make investors more conservative about supporting initiatives.

Given the existing challenges startups face in obtaining capital, many turn to alternative lending options for assistance. However, some of these opportunities may impede growth, such as high-interest loans and dilutive funding. You may receive the capital you need today from these sources, but not without increasing your debt burden and giving up equity.

Financing Methods that Stimulate Growth

While small enterprises struggle to expand, there are financing strategies they can implement to avoid extra debt and dilution. For example, non-dilutive funding initiatives allow startups to gain capital without sacrificing equity. Additionally, there may be grant options that do not require companies to pay back the money they receive. Consider the following opportunities when seeking funding for your startup:

Revenue-Based Financing

With revenue-based financing (RBF), the investor provides capital in exchange for a fraction of the startup’s ongoing gross revenues. Although RBF shares similar aspects to dilutive funding, it differs in that the repayment amount changes depending on the startup’s income. In other words, repayment increases when revenue is higher and decreases when it’s lower. Additionally, the investor does not take any direct ownership of the business with RBF.

This system helps enterprises avoid accruing debt that can stifle growth and give up equity.

Since RBF is like any other form of business financing, investors will evaluate your startup before offering capital. They will assess your cash flows and operational abilities and gauge your potential for scalability to make their decision.

Grants

Perhaps the most sought-after form of funding, grants allow startups to scale up without forcing them to forfeit a portion of ownership or accumulate additional debt. The Government, non-profit organizations, and some industry groups’ business funding offer grants, and most do not require repayment.

Though they may be an ideal option for many startups, grants are not without their share of limitations. To qualify for grants, small enterprises must fulfill unique stipulations put forth by the granting body. Furthermore, most grants must be complemented by other forms of funding to cover ineligible costs. They also tend to be time-consuming to pursue, and for a startup, that means drawing focus from other functions of the business.

SR&ED Tax Incentive Program

Besides grants, the Government also helps businesses through the Scientific Research and Experimental Development (SR&ED) tax incentive program. This program provides businesses with a tax refund for eligible expenses incurred during research and development projects.

The goal of the SR&ED program is to stimulate innovation, and the Government does not withhold incentives based on the startup’s success with the project. The program is particularly beneficial to startups, as over 75% of the 20,000 total claimants each year are small businesses.

One setback with the SR&ED program is that refunds are offered only during the tax year after companies have incurred research and development expenses. However, startups can receive advances on these incentives by partnering with companies like Easly. We calculate the refund a business will receive and then extend on-demand and non-dilutive financing through our Capital-as-a-Service platform.

Apply for Startup Funding Today with Easly

If you need extra resources to stimulate growth at your startup, turn to Easly for a reliable funding solution. With our services, your startup can receive the additional capital it needs without dilution of equity.

Get started today to access startup financing from our convenient online portal.