Securing the appropriate finances is top priority when you’re looking to get a small business idea off the ground. Financing for startups can be hard to come by, as there’s often little proof of previous success, and loans given to new businesses are often saddled with risk.
While bad credit and stringent loan regulations can make traditional lending routes unfeasible, alternative lending options have become the preferred route for many entrepreneurs looking to make a splash in a variety of industries.
Luckily, the following alternative financing methods offer new ways for entrepreneurs to pursue their business dreams.
Friends and Family
New business owners often secure the financing they need from loved ones. This is especially common for individuals with bad credit, but the risk of failure in these finance situations can result more than a lost business—it can ruin relationships. It’s difficult to separate personal feelings from business, and if you can avoid borrowing from friends and family, do.
If you have little experience in running a business, or you’re getting started in a new industry, you’ll need more than money—practical advice can be just as important. In these situations, angel investing is the best course of action.
Angel investors generally have amassed a fortune from previous business ventures, and are now looking to reinvest their money into new businesses to continue the trend. Because they have proven success, these individuals serve as excellent sources of both capital and business acumen.
There are numerous angel investing networks, and getting out there and networking in your city can also connect you with the right people looking to diversify their portfolios. Be prepared with detailed research before approaching any investor. You’ll need to show competitive analyses, solid marketing plans, and passion for your proposed industry to attract an angel investor worth their weight.
If you have generally good credit, you might consider handling your startup costs with credit cards. So long as you keep up with payments, using a card to finance your business can actually improve your credit score.
Business credit cards may also improve record keeping, track employee spending, and are generally easy to come by. However, there are a variety of downsides to this type of financing. If you miss payments, your personal credit score can be irrevocably damaged, ruining chances of traditional loans in the future.
Credit cards can serve as a source of easy money, but you’d be remiss to downplay the inherent dangers of relying on credit for business finances.
Hard Money Loans
Hard money loans are useful when you’re in need of money quickly, when waiting for traditional commercial financing simply won’t cut it. Hard money lenders can provide the financing a startup needs within weeks, and while the interest rates are often higher than traditional loans, the convenience of this alternative financing option can’t be denied.
These types of loans are based on collateral, usually in the form of property. If you have bad credit, this can be one of the best ways to get the money your startup expenses require.
Crowdfunding is becoming an increasingly popular way to handle the costs of a startup. Websites like GoFundMe and Kickstarter provide entrepreneurs the chance to plead their cases and call on public help for business financing funds.
If you have a solid business idea that appeals to the masses, and a solid business plan for achieving your goals, you may find it easy to amass the financing you need to get the idea off the ground.
Generally, those who donate will receive some sort of reward for their contribution. It could be gifts of your choosing or first editions of the product you’re proposing. Crowdfunding serves as a wonderful way to validate the opportunity in a given market but generally is best for those with a solid product already in creation.
Alternative lending methods have become essential for financing modern startups. If you have poor credit or little experience, consider these loan options as you begin your venture.
Article by Kate Anderson: I’m Kate, an organization expert, and I would love to help you live your best, and most organized life. When I first became interested in organization I never could have imagined all the ways it would improve my life, and I want you to have that experience, too. I started my website, Kate’s Organized Life, and began writing to share my tips on decluttering, organizing, and planning to help other people tackle the task of organizing their lives and setting themselves up for success.
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