What is non-dilutive capital and how to choose it?

As a business owner, you know access to capital is critical. For growing businesses, you are seeing fast-moving revenues and expenses. Because of that, there are risks you face by not having enough cash on-hand. However, companies do not want to risk diluting their equity, especially if it is an early-stage company. With that in mind, having non-dilutive capital can be the solution you are looking for to help when cash is tight.

 

What is non-dilutive capital?

Non-dilutive capital can also be referred to as revenue-based financing. This is a type of financing for your business where you are not losing any equity in the company, but gaining more capital for the company. In other words, you are receiving money for the business without giving away any ownership of the company itself.

 

As the owner or executive at a company, you never want to be in need of capital in a crunch. To avoid that, you want to stay ahead of the game. You don’t want to spend your time searching for financing options, but you want to keep your eyes and ears open to possible lending solutions. Remain aware of what solutions are out there in the market. To do this, you can talk to venture capitalists about trends they might be seeing in the companies they work with or keep an open line of communication with other entrepreneurs.

How to choose non-dilutive capital?

For most businesses, they have access to many financing options. When it comes to non-dilutive capital, entrepreneurs need to think long-term and choose solutions that will evolve as their business evolves. When looking at non-dilutive capital partners, here are some options to consider:

 

  • Growth Potential: Can this partner scale with your business? You don’t want to get locked into a partnership where the lender isn’t growing like your company is.
  • Strength of the Partnership: As the company grows, the financial picture of the company is going to evolve. You want to be working with partners that are trustworthy and adaptable during these critical moments. You don’t want to get locked into a bad relationship, especially when it comes to finances.
  • Cost of Capital: It is going to cost you to borrow money. Before locking anything into place, you want to make sure you are getting a competitive offer in terms of fees and interest rates. These costs will add up over time, so you want to make sure the offer makes sense to your business before entering the partnership.
  • Trust: While the lender is going to evaluate you and make sure you are trustworthy enough to borrow money, you should do the same with the lender. Read reviews on the lender, ask for customer testimonials. You want to work with a company that you can trust and know they will have your back.
  • Customer Support: As in any business relationship, you are going to have questions and concerns that will arise. Will this partner be there to answer those questions or address those concerns in a timely manner? Make sure they provide the support you need in this partnership.
  • Technology: We are in 2022, so this should never be an issue, but you want to make sure your lender’s technology integrates seamlessly with your company. Can you easily access your information with them? Can you sync your bank accounts to show transparency?
  • Terms and Conditions: No matter what financing solution you choose, there will be terms and conditions that come with that agreement. Make sure you read those terms and conditions before entering the partnership.

 

When choosing non-dilutive capital, you have to remember there are a range of options available to you. You need to be selective in your search and work with a lender that cares about their customers and works to maintain positive relationships and successful outcomes.

Non-dilutive capital example

There are many options out there when considering non-dilutive capital for your business. Here are some examples for you to consider:

 

  • Revenue-based financing: This option provides cash to companies and is based on the companies monthly or annual recurring revenue. No need to give up equity in your company, as you pay back the loan using future revenues.
  • Grants: Depending on where you live or what your business model is, there may be grants available to help you out. These grants can come from research institutions, government sources, or nonprofit foundations. With grants, there is usually no need to pay back the funds. However, the application process can be very timely and the more valuable grants are going to be very competitive.
  • Loans: Of course, you can borrow the money from a bank and pay it back with interest. The application process can be time-consuming, as well as the lender may ask for collateral, credit check or guarantors.
  • Crowdfunding: Depending on what your company does, you may have customers and supporters out there that would like to raise some money for you. We have all heard of Kickstarter, so these types of platforms can help you raise the money you need to use as working capital. When it comes to crowdfunding, there are no guarantees. You won’t know how much funds you have raised until the campaign is over.
  • Tax credits:‍ Depending on your business, you may be eligible for tax credits. You can work with certified public accountants (CPAs) who can help you find the tax credits your business may be eligible for.

When it comes to non-dilutive capital and possible lenders to work with, there are a wide range of options out there. You need to keep your options open and keep looking until the right fit comes to you. Focus on the positives and negatives for each lender to help you make the right decision. Let revtap help you with that decision, book a call with us today!

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