When most people think about starting and financing a small business, they probably think of bank loans. However, since the recent financial turmoil, banks have tightened their lending belts, making it much more difficult for small businesses to borrow money these days. The good news is there are plenty of other less-traditional sources of funding available to entrepreneurs.
1. Government Loans
The Small Business Administration guarantees all sorts of loans, from microloans of just a few thousand dollars all the way up to 7(a) loans of $5 million. Once you get through all the paperwork and are approved by the SBA, it will make working with banks much easier.
2. Crowdfunding and P2P
The Internet has made it possible to take banks out of the picture for many small businesses. Owners can turn to peer-to-peer(P2P) lending sites and crowdfunding ventures. Popular sites can be found online which allow many interested parties to contribute small amounts toward your total financing goal and you repay them via the website. Crowdfunding is slightly different in that you have to get enough people to make up your entire loan asking price before you can receive money. You can try sites like Kickstarter.com.
If you are very ambitious, you can try attracting your own angel investors and venture capitalists. This can be very profitable when you secure a deal, but it will take a lot of time and networking.
4. Family and Friends
And as unappealing as it is to most people, small business owners can always try borrowing money from their loved ones. This can be the way to secure the simplest of terms, but if things go sour with your business, you definitely risk ruining your relationship.
5. Home Equity
If you are a homeowner, one of your last resources might be a home equity loan or line of credit. While this may provide you a good chunk of cash, be aware that the risks of not being able to repay include possibly losing your home.
So when you are struggling to secure that bank loan for your small business don’t forget that there are many other resources to which you can turn.