The last two years have been brutal. Since the pandemic began, the world has been subjected to lockdowns of varying severity. And, even when authorities have loosened restrictions, people have been hesitant to spend.
With uncertainty constraining consumer capital, even healthy businesses have been under stress. According to CNBC, 60% of companies that closed due to COVID went on to fail. And here in Australia, the end of the JobKeeper Payment Programme has pushed thousands of companies to the brink of insolvency.
What does this have to do with startup financing? Plenty – many of the businesses mentioned above have loans on their books. Should they fail, these loans will go bad. Banks and private lenders know this, and are bracing for the worst-case scenario.
So, unless an applicant has perfect credit and has been around for a while, most lenders won’t give them the time of day. So, what does this mean for you? It means you’ll have to get creative. In today’s blog, we’ll highlight three approaches that may work for you. Let’s get started.
The Loan Ecosystem is in a Tough Spot
There are many ways to acquire startup funding. Some are conventional, whilst others are quite unorthodox. But, before we get into the latter, let’s talk more about why traditional loans are so hard to get these days.
Flip the calendar back a few years. In 2017, the findings of the Royal Commission rocked the Australian financial industry. In response, lending standards tightened significantly. Meanwhile, the first real estate downturn in decades threw a wet blanket over the issuance of secured loans.
Because of all this, entrepreneurs suddenly found it tough to get loans from the Big Four banks. But thanks to private lenders, business owners quickly found new financing.
Then, 2020 happened. Australia got off to a rough start straight away, as bush fires raged across the country. Whilst this disaster impacted consumer spending, the worst was yet to come.
When COVID hit, certain sectors were hit viciously. For example, travel-oriented businesses were ravaged, as were hospitality and event-planning businesses. Into 2021, some have recovered, but the unpredictability of outbreaks means danger is never far behind.
At this point, uncertainty is the biggest factor constraining loan activity. With Australia being under-vaccinated and a Delta wave looming, banks and lenders have locked up their vaults.
Simply put: right now, all startup funding means (including loans) are out of reach for everyone (except top-tier borrowers). But, that doesn’t mean hope is lost.
Three Funding Alternatives to Traditional Lenders
Being an entrepreneur means overcoming challenges, no matter how “impossible” they may seem. Whilst bank and lender financing has dried up, you can still access capital – you’ll just have to get creative. Below, we’ll highlight three unconventional ways to find startup financing.
Have you heard of Kickstarter before? How about IndieGoGo? These platforms, which launched in the late 2000s, forever transformed the startup financing landscape for entrepreneurial opportunities. But how do they work?
First, you create a project – from launching a cafe to introducing a product line, the possibilities are endless. As you do, make full use of video to communicate your proposal in a way that resonates with your target market. Then, promote it – get on social media, contact bloggers in your field, and even consider running paid advertisements.
But before starting this process, remember that most crowdfunding projects are all-or-nothing affairs. If you do not hit 100% of your stated budget, you won’t get any money. So, as your deadline approaches, re-double your marketing efforts – find ways to better target your ideal audience, all whilst clarifying your message.
Now, Kickstarter and IndieGoGo aren’t your only options for startup funding. For example, Pozible, an Australian-founded/operated crowdfunding platform, has raised over $100 million in pledges over a decade. And, if you need recurring contributions, Patreon can provide reliable cash flow through its subscription model.
(2) Raise Money From Friends & Family
As great as crowdfunding is, it can be a tough nut to crack. According to Kickstarter, only 37% of projects hit their stated goal. That means 63% don’t hit their mark – but why? That’s because consumers are more skeptical than ever before.
But do you know who isn’t wary of you? Your family, friends, and colleagues. These folks make up a group known as your warm network. Compared to strangers, they are more sympathetic to your calls for startup financing.
Even if they don’t fully understand what you’re trying to accomplish, many family & friends will still contribute. The stronger your connection, the more likely your pitch will succeed. But don’t take their support for granted – many relationships have gone sour over unpaid debts. Agree to a repayment schedule and stick to it.
(3) Take on Credit Card Debt
Your inner circle will do its best to help you. But, what if your warm network doesn’t get you over the finish line?
At this point, you may have to take on credit card debt. This startup funding tactic goes against the cries of many financial gurus, but if it helps realise your dreams, it may be worth it. With cards, access isn’t an issue – unlike loans, credit cards boast a high rate of acceptance.
But, do not make this decision lightly – the average Australian card has an APR of nearly 16%. That means that on a balance of $10,000, you can expect to make $1,600 in interest payments per year. So, if you do take on credit card debt, pay it off as aggressively as you can.
When the Going Gets Tough, the Tough Get Creative
Right now, Australia’s economic outlook is rather dire. Until the majority of the population gets vaccinated, uncertainty will continue to paralyse capital. But where there’s a will, there’s a way – by embracing unorthodox fundraising methods, you’ll have a greater chance of finding the startup financing you need.