Financing a major purchase sometimes means you have to think outside of the box. What works for one person may not work for another. There are a few things in general that make financial your start up easier; keeping a clean credit file, having a low debt to income ratio, and a keeping good amount of savings set aside. But just because one of those things may not apply to you doesn’t mean that you should give up on the idea. What are your options for start up costs?
- Selling an asset like your home, car, or property your granny left you may help you with your startup costs. Taking on too much debt when starting a business can doom your efforts before you begin, so finding money instead of borrowing can help you begin your venture debt free.
- Borrowing from friends and family is one of the top two ways to generate funds, according to Entrepreneur Magazine. The downside is you have to socialize with your creditors and if you’re on their bad side, you might find yourself with a large interest rate.
- SBA loans are usually granted to businesses that don’t have access to any other funds at reasonable terms. Loans are obtained from traditional lenders and are guaranteed by the SBA so that lenders are guaranteed to get their money back if you default on the loan. They have slightly relaxed credit standards and can direct you to education opportunities.
- Crowdfunding is raising money for your venture by small amounts from a lot of different people, typically via the Internet on websites such as Gofundme, Kickstarter, or Indiegogo, among others. This is a little like internet dating, business edition. You create a profile, give them your sales pitch, and they send money if they like your idea. This technique works best if you have a great marketing plan behind it and don’t mind using social media to drive your campaign.
- Home equity loans are based on the amount of equity in your home. If you have a lot of equity and a good credit score, this is a fast and easy way to generate funds for your business. On the down side, you can lose your home if you default on the loan.
- Using credit cards is the second top way for people to start their businesses. This works better if you have good credit and a low interest rate. If your credit limit is low, you may be able to talk you lender into an increase as long as your payment history is good. Be aware that cash advances have higher interest rates than purchases.
- A venture capitalist is an investor who provides money for startup costs for small businesses or for business that want to expand. In return for their funding, you pay them a negotiated amount or percentage of your profits and they may have certain rights to give input into how your business is run.
- Retirement loans are a risky way to raise funds. According to Bankrate.com, “Taking out a 401(k) loan is like cutting off your own limb. Most advisers would call it an act of fiscal insanity, unless you’re genuinely trapped with no other financial lifeline available”.
The government also wants to discourage you from withdrawing money from your retirement account. Be prepared to pay a 10% penalty plus income tax. For example, if you are in the 10% tax bracket you will pay 20% before you receive any funds. One thing to keep in mind is that government agencies do not lend to individuals. If you see ads that say they have special knowledge of government grants, run…don’t walk away. They are there to separate you from your money. If you need help with your business plan, need to bounce an idea off of someone knowledgeable, or need help swimming through the paperwork there are resources available and can be located on the SBA.gov website listed above:
- Small Business Development Centers are located in each state, usually in conjunction with a university or non-profit. The are staffed by either paid staff or volunteers that have a proven track record in business.
- Service Corps Of Retired Executives is just what it’s name implies. It’s a group of business owners who are passionate about helping you get your business started or improved.
- Women’s Business Centers focus their efforts on women but because they can’t discriminate, they will also help men.