So here you are. You’ve hatched an idea, talked with friends and loved ones, and take that first step. The dream of operating a successful business is on its way to becoming a reality. Somewhere along the road from thinking and dreaming to implementation, every business contends with the same hurdle: funding.
When hopes are high but funds are low, where can small businesses needing $50,000 or less turn?
If you’re like most of us, you simply don’t have tens of thousands of extra cash. Coming face to face with the reality of how much money it takes to jumpstart a blossoming business can be intimidating. The traditional approach is to muster all the charisma and collateral you have and strut your stuff to the nearest bank. Then you do your best to present yourself as a “good risk.” If all goes well, the rat race begins. Next step: creating a profitable business from your new loan.
But what if a bank loan is not in the cards?
For some, the idea of being in debt to a bank is troubling. Others simply don’t meet the stringent requirements banks look for in borrowers.
If this sounds like your dilemma, keep your chin up. While bank loans are a popular and viable option, they are by no means the only one. Let’s take a look at a few alternative funding options you can pursue instead of taking out a traditional loan from the bank.
Funding Options Close to Home
Before you hit the road and begin exploring ways to borrow money from others, consider self-financing. While you probably don’t have enough in a “rainy day” fund to meet your needs, there are a few other places to look.
Personal Options
Do you have assets tied up in ventures such as stocks and bonds, real estate, or retirement accounts? If so, you may consider liquidating a portion of them for cash. However, it is important to do research on your specific situation so that you are not caught off-guard by potential tax penalties.
In the case that you have no dispensable assets to leverage, there may still be a way. For those who own their own home, there is a chance that you may be able to obtain a special loan or line of credit based on the home’s value. This is particularly lucrative if a significant portion of your home is paid off. The less you owe, the more borrowing potential you have.
If you own one or are able to qualify, credit cards are a relatively hassle-free option. Of course, this works best if you have an acceptable credit score.
Also, be sure you are able to pay the debt off in a timely manner. Few things dig a financial hole faster than compiling credit card interest. To give yourself the best shot, seek out cards that offer special rewards. These can include cashback bonuses, 0% rates for an introductory period, or rewards for spending money with specific retailers.
Helping Hands
After you have exhausted self-funding strategies, go one step further out from yourself: friends and family. If you have a strong family or social network, it can be a great opportunity to find willing financers, and even potential business partners.
The people who know you personally are sometimes willing to look past factors banks and other institutions can’t. In addition, borrowing from family and friends maybe more lax than other financing options. Because of their intimate knowledge and involvement in your day-to-day life, they may be more understanding during hard times.
All that being said, involving friends and loved ones in business ventures should never be done lightly. Never pressure those you care about into a situation that makes them uncomfortable. If you are to proceed in such a way that financial struggles won’t damage the relationship, both parties must be on board.
Talk with them candidly about the risks and rewards involved in your joint venture. Be open and honest about the struggles you might face. If their comfort level with the reality of the situation is not good, then it is best to pursue other avenues.
Non-Traditional Funding Options
With the creation of the internet, possibilities in virtually every area of life have exploded. Most all of us are impacted by the instant access to knowledge, entertainment, and opportunity that the internet provides. As a small business owner, you can take advantage of the web for your financial needs as well. Various online services allow you to connect with people who are willing to help finance your dreams.
Crowdfunding
Traditionally, launching a good idea into a reality involves bank loans, investors, and a ton of face-to-face interactions. However, in our web-connected world, you can find willing financiers online. This strategy is known as crowdfunding. While each of the different crowdfunding platforms works a little differently, the basic concept is this:
- Pitch your business or idea to an online audience, explaining why it is worth their hard-earned dollars to help finance your project. Sometimes this involves exclusive perks for funders, such as a free or discounted product.
- Individuals from all over the world can voluntarily pledge money toward your cause
- If you reach the financial goal, the funds are released and can be used to make it happen!
Peer-to-Peer Lending
Another by-product of the internet age is a new style of lending. In the past, lending has been done almost exclusively through banks or professional investment companies. New peer-to-peer lending platforms, or P2P’s as they are called, make it possible to obtain loans from willing strangers.
The way it works is something like this:
- Individual lenders sign up for the platform and set their own rules about what kinds of loans they are willing to take on.
- Borrowers fill out applications that provide potential lenders with everything they need to know. Typically, the platform will help lenders assess borrower’s risk and recommend reasonable interest rates.
- The platform uses the information and criteria to match up qualified borrowers with an individual lender. The lender then has the final say as to whether or not to proceed with a loan.
Using modern technology and an entirely online process, these platforms can match huge numbers of borrowers and lenders very quickly. By simplifying a process that is usually much more tedious and complex, P2P loans can sometimes offer better rates.
Conclusion
While traditional lending practices through banks and investors still play a big part in business, there are other ways. Small businesses in need of loans under $50,000, in particular, have several other viable options. If you do go the traditional route, make sure to always understand the terms of your small business loan.
If borrowing from a bank is not an option, explore the possibilities we have outlined here. These include self-financing through personal means, reaching out to friends and family, or leveraging non-traditional funding via the internet. Thoughtfully considering all of the options available improves your chance of success, not only for your small business but also in your life.
