Photograph by Jeff Minton/Gallery Stock

CEO Tech Guide to Creative Financing

  1. The Search for Capital
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    The Search for Capital

    Banks are reluctant to fund new businesses because of a lack of profits and collateral. To get their companies off the ground, many founders end up emptying their savings, maxing out their credit cards, and hitting up friends and family.

    Photograph by Jeff Minton/Gallery Stock
  2. Lending Dries Up
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    Lending Dries Up

    Small business loans fell by half during the worst of the recent recession, according to the Thomson Reuters/PayNet Small Business Lending Index. Since then, lending has recovered somewhat, but it is still down nearly 25 percent from its peak at the end of 2006.

    Photograph by Les and Dave Jacobs/Getty
  3. Crowdsourcing
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    Crowdsourcing

    Startups, along with charities, musicians, and artists, have flocked to crowdfunding sites such as Kickstarter and Indiegogo to solicit contributions from the public. The sites have emerged as a substitute for formal funding. Pebble Technology, the company behind Pebble, an Internet-enabled wristwatch, is the poster child of crowdfunding success—it raised more than $10 million through Kickstarter last year.

    Photograph by Don Bayley/Getty Images
  4. Investment-based Crowdsourcing
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    Investment-based Crowdsourcing

    The JOBS Act, signed last year by President Obama, opened the door for companies to solicit investors through crowdfunding sites. The law is intended to let regular people invest in startups. Previously, only the wealthy could do so.

    The Securities and Exchange Commission promised to create the rules for investment-based crowdfunding by the end of 2012, but it missed the deadline. One of the agency's concerns is how to protect investors from fraud by unscrupulous startup executives.

    Photograph by Brendan Smialowski/AFP via Getty Images
  5. Lending Sites
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    Lending Sites

    Peer-to-peer lending, an additional form of alternative financing, bypasses traditional financial institutions. Using websites such as Prosper and LendingClub, borrowers tap regular people and investment firms for loans. On Prosper, between 12 percent to 14 percent of the loans are for business purposes.

    Photograph by James Lauritz/Getty Images
  6. Microlending
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    Microlending

    Microloans are an increasingly important source of capital for small businesses in the U.S. Microlending organizations made $135.6 million in loans available to nearly 169,000 businesses in 2010, according to the Aspen Institute’s Field program, which supports microlending organizations.

    Photograph by Steve Cole/Getty Images
  7. A New Method: Revenue-Based Financing
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    A New Method: Revenue-Based Financing

    Although relatively rare, revenue-based financing is gaining more attention. By this method, businesses pledge a share of their future revenue until the loan is satisfied. If they earn no revenue in a particular month, they make no payment. There is less risk to the borrower if sales plunge, and no collateral is required.

    Photograph by Andrew Harrer/Bloomberg