
Ask HN: Alternative funding options other than debt and equity - obayesshelton
Looking through the various funding options for a startup between late seed and series b, your main options are taking on some debt to your balance sheet or dilute yourself.<p>I just read that Stripe Capital now allows you to receive a &quot;cash advance&quot; based upon sales (they can see this if you are a stripe customer). Does anyone have any views on taking a &quot;cash advance&quot; as a bridge between rounds or even an alternative funding option?<p>Thanks in advance.
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davismwfl
Not about Stripe in specific as I haven't looked at their process yet, but
some general information.

Advances are done on receivables generally and are not a way to bridge between
rounds. The are a form of a short term loan and will be paid back as the
receivables come in. The most common way this is done is you are given say
50-80% of the value of your receivables (varies depending on market and
business), and any interest that might accrue during the collection period.
Essentially this is selling your receivables for a discount to get cash now. I
personally view this method as the equivalent of consumer payday loans, with
much of the same high risk attributes.

Alternatively, there are some banks who will loan against receivables, using
them as collateral, and that is almost always a better way to go as it is much
less expensive overall, you still pay a higher interest rate generally but it
is less crazy. But again, this is usually done as a cash flow management
method, not to bridge between rounds. But this will be treated as debt against
the company and likely the founders if you are small and haven't established
solid credit for the company yet.

This is something I think most VC backed founders don't know, understand or
learn. They don't establish credit with a couple of banks early enough when
they have the funds. I always start building credit with banks early. Take
$10k or some modest amount, use it as collateral for the bank to give you a
loan in the companies name only. Then use the hell out of it paying it timely
and never messing up. Then ask for a credit line increase to $20k or something
along those lines after 6 months of solid use and good payments. Keep doing
this over a couple of years and it is very easy to get $100-250k in line(s) of
credit from banks and you only paid some modest interest on the way to get it.
Then when you have the need that line is already there and it can be a huge
difference maker, plus the key is you get rid of personal guarantees this way
much faster than you would otherwise. It is crazy to me why startups don't do
this regularly, it is very common in normal the SMB world and with serial
entrepreneurs.

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obayesshelton
That is brilliant information, and I appreciate you writing up such a great
reply. A lot of food for thought.

