An often overlooked but brilliant way to get money to start a business is through preselling to customers. When you have the business close to launch, you can ask customers to buy your product before having the product or service ready to sell.
We worked with a company that rented products to college students moving on campus. Since the customer would not need the product until school started, the company was able to collect deposits to use as a down payment for a loan.
What is especially with preselling is the entrepreneur has the opportunity to see if the market really wants their product or service before investing a lot of money. We have worked with too many entrepreneurs who had “a great idea that can’t fail” that they never put in front of a client to see anyone would buy one. Having a great idea is just one part of a successful business.
There are risks to using this approach, so be sure to have a solid plan to deliver on time, otherwise you may have some upset customers. Also, some potential customers may want a discount in return for fronting money.
Preselling is similar to crowdfunding without the online marketplace.