Unconventional Financing Options for Your Technology Company













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Every company struggles with financing at one point or another. Whether it’s time to invest in some new equipment, move to a new location, or simply make ends meet during a slow period, cash flow can be an issue.

For technology companies, getting financing when they need is often even more of a problem. For starters, the costs of operating a tech enterprise tend to be higher than other businesses — not to mention, customer invoices are usually higher as well. Technology customers also have a tendency to be slower to pay than others, with invoice payments coming in 90, 120, even 180 days after delivery. This can be challenging for a small or startup company, since financing becomes a catch-22: You need to spent money to make money, but the earnings aren’t always where they need to be when you need them.

Many technology companies, when faced with the need for an influx of funds, turn to traditional sources like bank loans or investors. While these are certainly viable options, they aren’t right for every situation, and not every company can easily access money this way. Thankfully, there are other options, some of which can actually add value to your company while also giving you much needed cash.

Crowdfunding

Anyone who has ever donated to a GoFundMe or Kickstarter campaign has been a part of crowdfunding. Crowdfunding is exactly what it sounds like: Instead of getting a lot of money from one source, you gather a little bit of money from a lot of sources, which eventually ads up to a lot. Crowdfunding is ideal for a startup trying to build buzz for their project while also getting financial support: People want to get in on the ground floor of something big, and if you have something new and innovative to offer, crowdfunding may be the way to get started.

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This approach tends to work best when you are first starting your business, but you can also crowdfund new ideas and products to get them off the ground. Keep in mind that your investors are likely to want to see something in return for their support, such as a free or discounted product, and you may have to pay some fees to the crowdfunding application, but in most cases, the benefits far outweigh the costs.

Invoice Financing

Also known as accounts payable financing, invoice financing is an ideal solution when you have a number of outstanding invoices, of a particularly high value, and payment on those invoices would give you the funds you need. With this arrangement, you essentially sell your outstanding accounts payable invoices to a factoring company, which then pays you an advance on the value of those invoices, minus a small fee. The factoring company then takes over the collection of those invoices, while you have access to your funds, in some cases several months sooner than you would have otherwise.

The major advantages of invoice financing are that it’s quick (you can have your money transferred to your account in a matter of days) and that you are not borrowing money, but accessing money that you are entitled to receive. The main drawback is that you have to sacrifice some value of your invoices to cover the fees, but in most cases, you will pay much less than you would for a traditional loan.

Microloans

Finally, microloans are a viable option for businesses that don’t need a large amount of cash, and have certain obstacles that prevent them from qualifying for a traditional loan, such as a short business history or less-than-perfect credit. A microloan is typically a loan of $50,000 or less (the SBA notes that the average microloan amount is $13,000) that can be used for working capital, machinery or equipment, or the purchase of inventory, supplies, furniture or fixtures.

These loans often come with stipulations (in most cases you cannot use the loan to pay off existing debt or purchase real estate, for example) and you may need to complete specific tasks or requirements, such as completing a business training course before the funds are disbursed. However, because microloans are generally offered and managed by community or nonprofit organizations, interest rates and terms are reasonable, and you often gain access to additional resources, including training and management assistance.

Getting the funding you need for your technology company often requires thinking outside of the box and looking for creative solutions. These are just a few of the options you have, so if the bank says no, don’t give up. There’s most likely still a way.

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