Traditional venture capital and angel investment is highly competitive, favoring founders with big networks or proven track records. Despite growing emphasis on diversity and inclusion, most capital still flows to well-connected entrepreneurs. These types of funding usually require founders to give up a large share of their company and some control over how it’s run.
This article explains financing methods that help startup founders to raise capital while retaining ownership and control, providing crucial flexibility in today’s challenging market environment.
Why Look Beyond Equity Fundraising?
Equity fundraising can be a great way for companies to raise significant capital and bring experienced partners on board, without having to worry about repaying that money right away. Of course, there are some trade-offs—raising money this way means giving up part of your ownership, possibly losing some say in big decisions, and sometimes having disagreements with investors along the way.
Businesses that rely exclusively on equity are definitely vulnerable to changes in the market. Diversifying the sources of funds not only increases flexibility and strength, but it also makes it possible for one to grow or modify business operations without having to sell a significant amount of shares or lose control.
Top Alternative Financing Options for Startups
A startup has a broad range of alternative financing options beyond traditional bank loans and equity. These alternative options are faster and more accessible. Let’s look at them.
1) Shareholder loans
A shareholder loan is money given by the owner of a company or an investor, which is recorded as debt and not equity. This enables startups to get the necessary funds with conditions that suit their situation, without having to immediately give up part of their shares or give up external control.
2024 Market Terms:
- Investment range: $10K to $1M (depends on what shareholders can and want to invest)
- Interest rate: 4.00% to 4.57% (based on 2024 IRS rates; private deals can go higher)
- Repayment terms: flexibility, with options like interest-only, deferred, or structured over time.
- Revenue requirements: None (terms are agreed between the company and shareholders)
- Fees: Typically minimal, primarily legal documentation costs.
- Timeline: Typically 1 to 5 years (can be adjusted)
Example:
It would take $300,000 to finish a product prototype in a startup. The two current stockholders agree to loan out the fraction, $150,000 each. The interest on the loan is at 4.5% per annum, deferred for 24 months, and the repayment will stretch to 5 years. The money is provided by shareholders, so no outside authorization, or equity reduction is required, and the legal fee is less than 1,000 dollars.
Key Advantages & Risks of shareholder loans
Shareholder loans give early-stage companies a way to raise funds without giving up ownership. Since the terms are usually flexible and based on existing relationships, the money can be deployed quickly. Plus, the shared interest between the business and its lenders—and possible tax benefits—makes it a practical option for startups.
However, inadequate documentation may create tax complications, personal relationships may strain under financial pressure, and funding is limited to shareholder financial capacity, with potential conflicts arising if business priorities diverge from lender expectations.
Best Suited For: Early-stage startups with committed founders or advisors, bridge financing between funding rounds, and closely-held companies needing quick capital access.
2) Traditional Bank loans
A bank loan is the most conventional and well-known form of financing. Many banks partner with the Small Business Administration( SBA) to provide enhanced loan products with government backing, reducing risk and improving accessibility for qualifying businesses.
2024 Market Terms:
- Investment amounts: $5,000 to $5.5 million (SBA loans typically $100,000-$500,000).
- Interest rates: Generally 6%–12%, based on loan type and business profile. SBA-guaranteed loans have capped rates.
- Repayment: Fixed monthly payments over 1–25 years. SBA 7(a): up to 10 years for working capital, 25 for real estate.
- Fees: 1-4% origination, 0.36-0.55% SBA servicing fees, potential late fees up to 5%
- Requirements: Good credit, business track record, repayment ability; collateral if over $50K.
- Timeline: 2–8 weeks (faster for smaller loans)
- Collateral: Often required for larger amounts; personal guarantees common.
- Best Suited For: Established startups with revenue history, asset-heavy businesses requiring equipment or real estate, and companies with strong credit profiles seeking affordable capital.
Example: A company having an annual turnover of $1.2 million and a profitability record of 3 years takes an SBA loan of $400,000 to expand its facility. The bank will agree to provide a 10-year term loan at a fixed rate of 8%, and the monthly payment will be about $4,853. The borrower requires giving personal guarantees as well as a lien on business assets. The loan process will be closed within 6 weeks, and an origination fee of 2 percent will be charged.
Key Advantages & Risks of Traditional Bank Loans
They offer non-dilutive financing with competitive interest rates and extended repayment periods, which improve cash flow management. Meanwhile, SBA programs enhance approval odds for qualifying businesses and help build a business credit history with predictable payment structures.
However, the rigorous approval process requires extensive documentation, personal guarantees create individual liability exposure, collateral requirements may limit flexibility, and fixed payment obligations continue regardless of business performance, with lengthy approval timelines that may not suit urgent funding needs.
3) Venture Debt
Venture debt is basically non-dilutive funding that is meant for high-growth, venture-backed companies. This kind of debt is usually given by specialized venture lenders or banks and is often used to cover the gap in the financing between the rounds of equity.
2024 Market Terms:
- Investment: $500K–$20M (typically 20–35% of last equity round)
- Interest: 9–15% APR + 1–3% fees, often with equity warrants or options.
- Repayment: 1–4 years with 6–12 months interest-only, then principal + interest
- Fees: 0.5–2% origination, 1–2% final payment, 0.1–0.5% warrants, 1–2% prepayment, plus minor admin fees.
- Requirements: Venture capital backing, demonstrated growth metrics post-Seed or Series A.
- Timeline: Takes about 4 to 8 weeks from applying to receiving funds.
- Best Suited For: Fast-growing technology companies, SaaS businesses with predictable revenue, and venture-backed startups needing runway extension without dilution.
Example: A startup had raised a Series A round of $6 million and now gets $1.5 million as venture debt (25 percent of the previous round). The lender will impose a 12 percent interest per annum, a 2 percent origination fee ($30,000) and warrants of 0.5 percent equity. The terms of repayments provide 9 months interest only, and 27 months principal + interest. It is valued that the total cost of capital (including final fee) will be about $2 million in 3 years.
Key Advantages & Risks Of Venture Debt
Venture debt offers minimal dilution (only warrant coverage) while complementing equity financing strategies with faster deployment than equity rounds, allowing founders to maintain control and decision-making authority while working with experienced lenders who understand the dynamics of startups.
However, this comes with fixed repayment obligations and financial covenants that restrict operational flexibility. It also carries risk if growth targets aren’t achieved, warrants dilution upon a successful exit, and higher costs compared to traditional debt instruments.
4) Revenue-based financing
Revenue-based financing (sometimes known as royalty-based financing) is a flexible form of alternative funding that provides businesses with an upfront cash investment in exchange for a share of future revenue.
2024 Market Terms:
- Investment amounts: $50k to $10 million (most common: $500K–$2 million)
- Revenue percentage: 3–8% of monthly gross revenue
- Repayment multiples: 1.2 and 3 times the initial advance.
- Fees: origination/admin fees are typically 1–4%.
- Revenue requirements: Typically $100K + annually recurring revenue.
- Timeline: 1–3 years to achieve full repayment, depending on growth rates.
- Best Suited For: SaaS companies, subscription businesses, e-commerce platforms, and any venture with predictable, recurring revenue streams.
Example: A firm that has a recurring monthly revenue of $150,000 gets RBF of $200,000. It makes a commitment to pay 6 percent of monthly revenue until it settles $240,000 (1.2x multiple). If revenue remains the same, the repayment will take around 26-27 months. There is a 3% admin fee ($6,000), and no dilution of equity or putting up of collateral.
Key Advantages & Risks of RBF
Revenue-based financing offers non-dilutive capital, providing faster approval than traditional financing without collateral requirements. This approach allows founders to retain full control and ownership.
However, this option carries higher effective costs than traditional debt, creating cash flow pressure during revenue peaks. This is limited to businesses with predictable revenue streams, offers smaller funding amounts compared to equity rounds, and can complicate repayment planning when revenue experiences volatility.
5) Working capital loans
Working capital loans address short-term financing needs, including inventory purchases, payroll coverage, and seasonal cash flow fluctuations. These flexible financing tools help businesses maintain operations without long-term commitment or equity dilution.
- Investment amounts: $5K to $10M; however, the majority are in the range of $50K to $5M.
- Interest Rates: 6.5%–12% APR; SBA: 10.5%–15.5%;
- Repayment Term: 6 months–5 years (up to 10 years for certain SBA/bank loans)
- Fees: 1–4% origination, plus possible prepayment or late fees.
- Collateral: Often unsecured up to $250K–$500K;
- Eligibility: Requires 1–2 years of business experience, $100,000+ revenue, and a credit score between 600–680
- Funding Speed: Banks/SBA: 30–90 days; online/fintech: 1–10 days
- Best Suited For: Seasonal businesses, retail operations, service companies with irregular cash flow, and any business needing quick operational capital.
Example: A startup needs to cover the seasonal demand by taking a working capital loan of $100,000 with an online lender. The finance is approved in a 3-day period at 10 percent APR and a term of 12 months at an approximate weekly payment of $2,050. The origination fee charged is 3 per cent of the loan amount ($3,000). There is no need for collateral due to the fact that the loan amount is below $250K, but a personal guarantee signing is required.
Key Advantages & Risks of Working Capital Loans
Working capital loans provide rapid access to flexible capital that preserves ownership through non-dilutive financing, often available unsecured for smaller amounts with various repayment structures to accommodate different business needs.
However, these loans typically carry higher interest rates (especially from online lenders), require regular payments that can strain cash flow, often need collateral for larger amounts, may involve aggressive collection practices from online lenders, and feature short terms that can create refinancing pressure.
6) Crowdfunding
Rewards-based crowdfunding enables entrepreneurs to raise capital by pre-selling products or offering exclusive perks to backers. Platforms like Kickstarter and Indiegogo facilitate these campaigns, combining funding with market validation and community building.
- Investment Size: $500–$500K+; most raise $5K–$100K. Viral campaigns may exceed $1M.
- Repayment: No repayment required, but promised rewards must be delivered.
- Duration: 30 to 60 days.
- Fees: 3–8% platform fee + ~3% payment processing.
- Timeline: Funds released within 1–2 weeks after campaign success.
- Funding Model: Most platforms use an “all-or-nothing” approach
- Best Suited For: Consumer product launches, creative projects, hardware startups, and community-focused ventures with compelling stories.
Example: A product based startup launched a crowdfunding run of 60 days to get the amount of $50,000 to be able to launch its initial manufacturing run. The fundraising generates $85,000 with 1200 supporters. The cost incurred on the platform is a 5 percent fee ($4,250) and a 3 percent payment processing fee ($2,550). Amount received after fees = $78,200. This startup has to meet the promised rewards (e.g. pre-orders) at an average unit cost of $35 and shipping cost of $5 per unit.
Key Advantages & Risks of Rewards-based crowdfunding
Rewards-based crowdfunding offers non-dilutive capital with no repayment obligations, providing market validation before full product development. This enables community building and early customer acquisition, with potential for media attention and viral marketing, while maintaining full ownership and creative control.
However, there’s no funding guarantee despite significant effort and investment. Campaigns require high preparation and management time, create reputation risk if promised rewards cannot be delivered, involve platform fees that reduce net funding, present production and fulfillment challenges for complex products, and are limited to consumer-facing products with mass market appeal.
Fund Your Startup the Smart Way
Equity fundraising has the potential to bring in expertise and huge capital, but it typically results in reduced ownership and control. The good news is that modern startups have more and more alternative financing options at their disposal. Besides shareholder loans, bank and working capital loans, revenue-based financing, and rewards-based crowdfunding also enable you to get capital without giving up equity, thus giving founders more flexibility and resilience in volatile markets.
Venture debt is a smart tool for startups that want to extend their business operations without giving up a large portion of ownership. Suppose you’re considering this type of funding. In that case, you should know that companies like Cheqly offer venture debt along with other useful financial services, such as business accounts, debit cards (both physical and virtual), and online money transfers, all tailored to suit startup needs.
By combining different approaches, founders can better balance their growth goals with the need to retain decision-making power.
Start your journey with Cheqly and check if you’re eligible for growth-focused venture debt.
Disclaimer:
All the financing options need thorough examination of the conditions, expenses, and strategic consequences. Talk with financial experts and legal representatives to ensure that you choose the most suitable one for your particular case and future business objectives.