Getting financing for small businesses has never been easier. The credit crunch that started with mortgages has now spread to personal and small business loans. Small business operators should not be surprised that banks have tightened their lending requirements.
Small business owners now need to be more creative in securing financing for their business. They must now look for alternatives.
Borrow from yourself
Although I have never advocated that business owners borrow from their retirement fund to finance the start up of a business. However, in difficult credit times, it may be an option for you to make the best use of your savings to fund your business.
Take inventory of all your assets and consider liquidating some of your assets. You can lend your business money and pay it back later when your business is cash flow positive.
Borrow from family and friends
Funding from family and friends has been one of the best ways to arrange business start-up funding. Generally, these loans are cheaper and more lenient with repayment terms. You may be able to get a loan from your parents with no interest and deferred payments, giving you time to build up cash with your business before you have to start paying it back.
Friends can lend you money at a higher rate than they receive in their savings account. Typically, interest rates from family and friends would be 1-2% lower than what the bank would lend you money for.
Try not to have to cede your business equity to family and friends in return for the loan. You will end up doing the work and they will get part of the profit.
Enter “person-to-person lending” into a search engine and you will be directed to online lending companies that borrowers can apply for funds from. Lenders get a good return for making the loan. Yes, the interest rate will be higher, but it’s a good way for entrepreneurs to find start-up financing.
eBay is a great place to sell items for profit. For example, I heard of an entrepreneur who raised start-up funds by selling designer handbags bought in bulk on eBay.