Creative Financing Ideas for Your Small Business Startup

Creative Financing Ideas for Your Small Business Startup

Part five of our "Guide to Financing Your Startup"

There are plenty of creative ways to bankroll your new business without applying for a bank or government loan. In this Guide, we’ll explore how partnerships, vendor financing, customers, and self-financing can offer viable alternatives for funding your startup.

Relying on Partners as Investors:

Forming a partnership with someone who has deep pockets is one way to bankroll your venture. If you have a great idea but lack the funding to execute your business plan, forging a partnership with an investor is a strong option.

Partnerships are relatively easy to form, and with multiple owners your fundraising capacity is enhanced. Relying on a litmus test that only seeks out the person with the deepest pockets, however, misses the point, and can often lead to problems. You also need a partner who shares your vision and who brings complimentary skills to the table. No matter how good he or she is, be certain to craft an exit strategy that allows you and your future teammate to break up amicably should the need arise. The American Institute of Certified Public Accountants’ Web site,, and the National Bar Association’s online homepage, are both useful resources in finding an expert to help draft your “worse case scenario” strategy.

Vendor Financing

In a vendor financing arrangement, you obtain a loan from a vendor in order to purchase their products or services. This arrangement can be mutually beneficial to both the customer and the vendor; the vendor is able to increase sales and earn interest, while the customer obtains the financing needed to operate.

Vendors can play a significant role in financing a new business. Many vendors are willing to work out an arrangement to finance your equipment or supplies in order to get and keep you as a customer. If you haven’t established vendor relationships, shop around, and try to negotiate the most favorable terms you can, such as having payments spread out rather than paying “Net 30.” Trade associations are good resources for finding a supplier that offers financing.

Customer Financing

Consider approaching key customers who are in a position to offer financing in exchange for sizable discounts or equity at a later date. A customer may realize the business potential of your new company and want to invest in the early stages. Offering a preferred class of stock for early believers is a good way to build capital.


Whether you obtain startup capital from banks, the government, or from relatives or friends, you’ll almost certainly put some of your own money into the business.

Common ways to raise cash include selling large personal assets, such as jewelry, boats, cars or timeshares. For those who own a home, taking a home equity loan is an option, but you should have the means to make the loan payments for the first year or two without any income from your startup to even consider such a serious commitment.

Although the initial sacrifice may be great, remember that any personal assets you use to finance your startup show potential lenders that you believe in your new venture, and make it easier to get other funding.

And don’t overlook the fact that answering to yourself, instead of investors, is always attractive to an entrepreneurial spirit!

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