10 Ways to Creatively Finance Your B2B Startup

The number of business buzzwords in the digital arena is growing by the day and B2B has joined this list. B2B is a cool term that refers to business to business entities. B2B simply refers to businesses that sell other businesses.  These startups may for example deal with security services, furniture and installations, digital goods and services or supply of physical products.

There are several types of B2B businesses but the most common are;

•    Product supply B2B entities

These businesses supply physical goods like business cards, furniture or food to name but a few to other businesses. These businesses can be online based or conventional brick and mortar stores.

•    Service-based B2B entities

Businesses require a lot of services so there are a lot of service based B2B entities out there. They include graphic and web design services to businesses or legal and financial services.

•    Software-based B2B entities

These types of businesses may for example supply services and products that replace the need for the conventional human resource. These include invoicing platforms, CRM or email marketing software providers.

If you are thinking of starting your own B2B business, you are in good company. Did you know that there are close to 29 million small businesses in the U.S? These small businesses make a whopping 99.7% of businesses founded on the continent. How cool is that?  

Unfortunately, most aspiring business owners sooner or later find themselves faced with the challenge of financing. Research shows that 82% of business fail because of lack of finances. To fund your B2B you, therefore, have to employ creative ways especially if you are part of the marginalized women and minorities populations who according to research experience low approval rates for conventional business financing.

Creative Ways to Finance a B2B Business

1. Personal financing

Over 77 % of all startups are actually funded by the business owner’s personal savings because most brick and mortar finance institutions are very risk-averse. Statistics show that for example in 2016, banks only approved a paltry 23% of all funding requests.

Banks will have a harder time financing a B2B idea when you have not put your money where your mouth is by saving and using your own hard-earned cash as start-up money.  Bank loans should therefore not be your first source of money to start up your business. Banks are benefactors so maximize on nonbank options first, and then seek their help as you grow.

2. Family and friends

Your close family and friends are perhaps the most vested parties to your success. This is why at least 82% of all startups take off with funds borrowed from self, friends and family. It, however, creates a very precarious situation because if you fail to pay them back because it could cause painful conflicts.

Whenever you get finances from associates or family ensure that you write them promissory notes for the loans.  You can also give them bridge loans that you can convert to financial equity when your business is up and moving.

Do your due diligence and choose not to accept loans from friends and family who cannot afford to loan you money without placing themselves in financial jeopardy.

3. Crowdfunding

You have probably heard of Indiegogo, Kickstarter, Fundly, RocketHub and Fundable. If not, these are fantastic crow funding websites that have given a financial helping hand to thousands of entrepreneurs.

Crowdfunding works by raising money from the crowd and so far, crowdfunding sites have raised millions of dollars for thousands of business startups. Each platform has its own pros and cons so do your homework and vet each accordingly.

4. SBA loans

Small business administration backed loans have fantastic interest rates and favorable repayment schedules for entrepreneurs with stellar credit scores. The U.S government backs these loans to help small businesses get on their feet and also offers grants for educational and non-profit businesses.

To get an SBA loan, there are certain hoops you have to jump through, but these loans are still more accessible than other forms of credit.

5. Angel investors and venture capitalists

Angel investors are entrepreneurs who can spot a good business idea from miles away. They love to invest and make a profit from good startups.  They will give better financing terms when compared to other types of business investors.

To net an investor, you need a great business plan and they will most likely require shared equity in the investment. All angel investment requires registration with the Securities and Exchange Commission.

Venture capitalists, on the other hand, are usually in the lookout for shares in well-performing B2B startups so as to make the money they invest back. They will also require some form of control over the running of your business, so be mentally prepared for it.

6. Online Lenders

Online loans are easier to acquire than traditional bank loans. Online lenders only perform a soft credit check before issuing credit making these large loan types up to $10k a lifeline for most B2B startups. These loans are also usually disbursed in record time and can be applied for right in the comfort of your business premises or home through online lenders apps or websites.

So, if you have a bad credit score, here is a creative way to fund your startup, if your business is a few months old. Online loans have the disadvantage of being high interest charged loans, so be very careful with your repayment schedules. Lateness on your part could skyrocket your interest charges and penalties making the loan unfeasible for your business.

7. Purchase order financing

Besides the source of financing, one of the most terrifying problems a B2B owner could face is the probability of turning down an order because they do not have the finances to deliver it. Thanks to purchasing order financiers, your B2b can meet its LPO financing problems head-on.

These organizations will advance your business the money to finance your purchase order which can be paid back once the money for goods supplied is in the bank.

8. IRA/ 401K financing

If you have a retirement account or 401K you have a credible way to finance your dream business idea. You can use these retirement accounts to fund your business idea by exploring rollovers for startups also known as ROBS.

You will need the help of your tax attorney if you are going to utilize your 401K to fund your business so that they can create a corporation that these your assets can be rolled over into.

9. Credit card debt

Many small B2Bs use credit card loans to maintain working cash flow. Credit cards can, for example, pay for the business’s utility bills, discounts, travel expenses or stationery. Keep in mind that your credit card highly influences your credit score so keep it clean.

Do not fall behind your payments because once your credit score is adversely affected you will find it hard to secure better financing options for your B2B business. Credit cards also carry very high-interest charges so use them very carefully as they will impact your profits.

10. Home equity loans

Instead of depending on your friends and family for business financing or amassing high-interest credit card debt, why not take up home equity finance and bootstrap that B2B idea?  Home equity as a source of finance comes as either a loan or a line of credit. What is the difference between the two?

The loan is disbursed in the lump sum and paid back in agreed installments. The line of credit, on the other hand, acts like a credit card. It limits the amount of money that you can take out at a time. If you want larger amounts you will need to pay more as for principal. A home equity loan can be paid back in three decades.

The factors that influence your ability to leverage your home as a source of business finance include your credit history and value of your home. The advantage of home equity credit is that it is a quick source of cash that can keep your business afloat.

If your home’s value is on the rise, most banks also will not hesitate to offer you a loan. Better still the home could help pay back that loan as long as its value keeps rising. There, of course, remains the danger of you losing your home as it happened to many business owners who had taken out loans on their property during the recession.

The housing bubble collapsed, lowering the values of homes. Be careful therefore if you choose this method of financing. Alternatively, why not refinance your mortgage so that you can have low monthly payments. This will leave you more cash on your hands to direct to your business.