See if you qualify for up to a $100,000 credit line in <2 minutes. As a part of the Rodeo Community, get 20% off our standard rates by clicking here (promo automatically applied).
Intro
Choosing the right funding option is critical.
We’re living in the golden age of fundraising options for emerging CPG brands. The space for non-dilutive funding (i.e. money that doesn’t require equity) has boomed over the past 5 years. In just a few minutes, brands of all stages can qualify for $100k+ to foster growth (more on that in a minute).
In this article we’re going to cover:
- What are the main fundraising options out there for my CPG business?
- Which options are best for my CPG business?
- How do I choose a financing partner?
- What are some things to watch out for with financing partners?
What are the main fundraising options out there for my CPG business?
There are a bunch of ways to raise money so we put together a table that covers the most popular ones and makes them easier to understand.
Outside of crowdfunding which is like a product “pre-order”, they fall into 3 main categories.
Raise Equity
Con
- The most expensive as it it requires selling a part of your company and giving up some control.
- Not usually an option for smaller companies.
Pro
- Aligns incentives with strategic partners.
Sell a Future Receivable
Con
- Often requires set daily paybacks which take cash flow out of your business before it can be used for growth.
- Chicken-and-egg scenario since you need sales to sell future receivables, which often requires money.
Pro
- Allows you to access cash quickly to reinvest in your business.
Lines of Credit
Con
- Some require a set payback period which interrupts the company’s operations and others require large minimum monthly payments.
Pro
- Provides the most flexibility - you can use the money for whatever, whenever, and choose when to pay it back.
- Often comes at the lowest price and most favorable terms.
Which fundraising option is best for my CPG business?
We wish there was a simple answer here, but it depends on your stage.
In the early days, most founders start by bootstrapping and raising money from friends & family. They may even open up some credit cards or secure tech-enabled growth financing.
As the business evolves, other options like angel investment and/or venture capital start to make more sense.
One rule that applies to every brand is…do your homework.
How do I choose a growth financing partner?
They have the ability to help grow or hault your business depending on how reliable they are.
Let’s talk about a real scenario.
A brand got back from Expo West and with a large purchase order from a distributor they’d been chasing for months.
Winning this account had them over the moon.
Now, they needed money for production. So, they contacted their financing partner to release funds that had been pre-approved.
To their surprise, the partner said, “Sorry, but this money is no longer available.”
Why would a financing partner do this? Most financing partners have limited money and are not regulated by anyone. So, even though they might agree to provide a credit line, they can change their mind with no legal risk.
Braavo is different. You get the best of both worlds. We’re a bank which means we adhere to much stricter regulations AND we leverage technology to enable qualification in minutes.
See if you qualify for up to a $100,000 credit line in <2 minutes. As a part of the Rodeo Community, get 20% off our standard rates by clicking here (promo automatically applied).
Regardless of who you choose, picking a financing partner is a big deal. Take your time. Confirm they share your values and are in it for the long haul.
What are some factors to consider when choosing a financing partner?
The CPG business is tough and turning a profit should not be hindered by hidden financing charges.
Here are some things to look out for:
- High interest rates - In this environment, anything more than 8-10% APR is high. (note: 1% per month is 12% per year for those who quote prices on a monthly basis)
- Payback periods - Some options mandate repayment in a certain period of time - often within months. Business is unpredictable, you shouldn't be forced into a schedule.
- Unused fees - You should only pay for money you use, not funds sitting in the lender's bank account.
- Personal guarantees - This is a standard term for small business loans. Some claim they do not have a personal guarantee to justify higher rates. Watch out for different names such as a validity guarantee or a bad actor clause - they all result in the same thing. If there's a personal guarantee, what happens if you can't repay the loan? Does the partner have free reign or is there a government agency involved that ensures fair treatment?
About the Author: Braavo Bank
Braavo Bank is a division of HV Bank, a regulated bank in Philadelphia that has made loans to thousands of small businesses over the last 100 years. Braavo Bank is entirely focused on the CPG industry, having an executive team with deep experience operating and financing CPG businesses across the entire supply chain. This expertise, coupled with its tech-first platform and access to low cost of funds as a bank, allows Braavo Bank to offer extremely flexible and borrower friendly financing products to CPG brands at industry-leading prices.
