November 30, 2015 Finance & Funding en_US If you're an entrepreneur working on a new product, knowing your financing options can be a huge help. Learn the 10 ways to finance the launch of your product. 10 Ways to Finance a New Product Launch
Finance & Funding

10 Ways to Finance a New Product Launch

By Rieva Lesonsky November 30, 2015

You have a great idea for a new product, and you’re confident that it will be a top seller. Having the necessary capital to get your idea off the ground is important.

So, to help your idea become reality, here are 10 ways you can finance your new product’s launch.

1. Friends and Family Financing

If your new product is the basis of a brand-new business, the first step for obtaining capital for many small businesses is the network of friends and family members. However, it’s important to treat your friends and family as seriously as you would any other lender or investor.

That means developing a detailed business plan, creating a prototype of your new product, drawing up loan documents and paying any loans back with interest.

2. Licensing Your Product Idea to a Big Company

By licensing your concept to a bigger company, you give them the right to manufacture and sell the product, and you take a percentage of the profits. It’s important to enlist the services of an attorney experienced in licensing to protect your interests.

3. Peer-to-Peer Lending

With peer-to-peer financing, you obtain loans from other individuals you find on lending sites. This alternative lending option provides both business and personal loans, and sometimes at lower interest rates than traditional bank loans with less paperwork.

4. Crowdfunding

Crowdfunding also raises money from individuals, but the funds raised are given as donations as opposed to a loan. In return, these investors typically receive early access to your product, a limited-edition version of the product, or other special treatment.

5. Trade or Vendor Credit

In trade or vendor credit, your suppliers give you an extended time to pay them for the materials you need to make your new product. If you can negotiate 90-day terms, for example, this might provide the funding you need to launch your new product and sell enough of it to pay the vendors back.

6. Pre-Sales

If you have an existing business with regular customers, you may be able to pre-sell them on a new product before you develop it. One strategy to consider is to offer your first customers a substantial discount on the product, which may encourage them to buy in. Once you make enough pre-sales, you may be able to subsidize manufacturing the product and eventually sell it at full price.

7. Subscription Sales

Subscription sales most often work well for products that need to be purchased or replenished on a regular basis, such as cosmetics, personal care products, office supplies, or pet food. By selling monthly, annual, or quarterly subscriptions before the product is made, you may be able to generate enough income to finance production.

8. Purchase Order Financing

In purchase order financing, a lender advances you money based on purchase orders you’ve obtained for your new product from a large customer. You can then use the money advanced to pay for manufacturing the product.

9. Business Line of Credit

You may be able to obtain a business line of credit from your bank or an alternative lender. Similar to a home equity line of credit, a business line of credit enables you to draw from the credit line up to a maximum amount.

You pay back only what you actually use, and as you pay the money back, your line of credit rises back to the maximum again.

10. Credit Card Financing

Financing a new product launch with credit cards can be costly. Generally, sales generated should be enough to pay off the charges without incurring high interest rates.

By researching the range of funding options for your product launch, you can make an informed decision for your business.

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Rieva Lesonsky is a speaker and author focused on entrepreneurship. Read more