Innovative way to get biz funding without the VC
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Found this post while looking around the net - and thought it was great.
This company, Ravelry (A Knitting Community), raised $71,000 for their business in donations from friends and users (about 3,500 people).
That averages out to about $20 a head - now these are "donations" in that they're not 501c3 but "hey, I like what you're doing." No tax break, just, "hey, I like your work."
It shows how little things can be a big help - and sometimes, that VC or "big money" isn't always the best way to go.
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Here is another idea for funding your business without venture capital: Securities-backed lending.
You can borrow against the value of your investment securities in a non-retirement account. Stocks, bonds, mutual funds and sometimes other investment securities can be used as collateral for a loan that can be accessed by check or plastic card. Personal and business-owned securities can be used for this purpose.
There are some advantages and disadvantages. Among the advantages: By borrowing against your securities instead of liquidating them, you avoid capital gains taxes and you can continue to grow your portfolio as you grow your business. Repayment terms are flexible as long as a certain loan to value ratio is maintained. Typically the loan is a non-purpose loan, so it can be used for any personal or business need without approval of a business plan. No credit check is needed. No information is reported to credit bureaus. Often, the loan can be accessed via check or plastic card as needed. Among the drawbacks: Should the loan-to-value ratio not be maintained, a deposit of cash or securities may be required, or underlying assets may be sold to restore the ratio.
This type of lending could be used by a business person to fund his or her own start-up or expansion, or a prospective external investor in your company could use this type of lending to generate cash to invest in your business.
Who does this kind of lending? Many securities broker-dealers do this type of lending. I'm a Financial Advisor at Merrill Lynch, and have done this type of lending for clients. However, if you do your investing with a commercial bank, credit union, insurance company, or if you purchase mutual fund shares directly from a mutual fund company, then it is unlikely that this service is available. Nonetheless, if your securities are held at an institution that does allow you to borrow against them, often the securities can be transferred (without being liquidated) to an institution that offers securities-backed lending.
Securities-backed lending is not for everyone in every situation. You should consider risks and benefits carefully, in consultation with a tax advisor.
If you want to know more about how this works at Merrill Lynch, call me at work.
Jeff Kingzett
248-475-1015
jeffrey_kingzett@ml.com