When everything else fails, a diligent netrepreneur still has a few other financing options. Alternative financing provides you with one more option, although it's not necessarily your best or first choice. These options can help you open your doors for business, as they say. Often, you end up combining a number of these sources to fund your great idea:
For better or worse, a credit card is really a popular option for funding a business. More than 80 % of small businesses purchased personal and business credit cards like a source of money, based on the Small Business Administration (SBA). As lending tightens from banks and other traditional resources, credit cards can occasionally provide the only source of payday for any new or growing business. Although credit cards may be a fast and simple alternative, they can also be expensive.
Some credit card companies charge interest at 20 % or more. In addition, they can slap you with hefty fees for late payments or for exceeding your credit limit. Financial advisors also caution that fully reducing the total amount of your credit cards can take decades when you're making only the minimum monthly payments.
To make the best utilization of credit cards, look for cards that offer rewards based on your spending or total balance. Credit card companies often give reward points for every dollar spent, which can be accustomed to cash in on gift cards to office supply stores or buy merchandise that can be used in your business (such as digital cameras and even computers).
Consider moving balances rich in interest terms to another card. Credit card companies often offer limited introductory low- or no-interest rates for transferring your balances using their company cards. If these offers don't come in the mail, don't be afraid to call credit card companies (including your existing one) to negotiate for a better rate.
Retirement cash: An individual savings plan, such as a 401(k), is definitely a source of cash for someone opening a start-up business. Before draining your account, consider the penalties for early withdrawal and seek advice from your accountant on the benefits and drawbacks of this source of funding.
Home equity loan: Carrying out a period of rock-bottom rates of interest and that which was an apparently endless housing boom, banks along with other lenders have finally pulled back from their creative borrowing options. As a homeowner, you can still "cash out" the equity in your house, apply it other purposes, and pay it back in a fixed rate of interest over 5, 10, 15 years or more.
Similarly, you can refinance your home and employ the extra funds for other purposes, for example starting a business! An alternative choice would be to open a house equity type of credit. It gives you a fixed amount of money that you're approved to gain access to. You are taking out the money only while you need it, though, instead of in one lump sum payment.
However, all these options have become increasingly difficult to obtain following the banking and housing meltdown of 2008. Now you must have fantastic credit scores, amongst other things, to be eligible for a financing. You can still use a home equity loan as a funding source - just be prepared to jump through a few extra hoops to get the cash!
Borrowing money against your home is always risky! Many business experts hesitate to recommend this method being an option because of the potential loss and the emotional toll of losing your home. Talk to your accountant, or any other financial advisors, before making this decision.
High-interest loan: Some specialized lenders finance loans (even highrisk ones if you have poor credit) at high interest rates. These rates are usually much like, or higher than, credit card rates. When all other options fail, this method may be a possibility; be cautious, though, about taking this route.
Microloan: If you're looking for a smaller amount of capital, several sources exist. For example, the SBA includes a Community Express (or Small Loan) Program for smaller businesses. The low-interest loans are usually for amounts less than $100,000 and are usually nearer to $5,000 or $10,000. You do not need collateral, or even a complete business plan.
However, you need to participate in an appointment by having an SBA-approved technical advisor, and you should have good credit. The loans can sometimes be obtained within 24 hours are applying. To find out who offers loans in your area, contact your state or regional SBA office.
Other microlenders include private organizations, such as Count Me In a nonprofit lender that provides lending and other resources and Accion USA, a nonprofit lender that loans as much as $25,000 to small businesses.
Grant or award: If your business concept is innovative, you may want to search out grant opportunities or contests offering dollars. Grants are monetary awards that you don't have to repay. For example, in the Idea Happens contest that Visa USA sponsored, the organization gave $25,000 in seed money to 12 young entrepreneurs who submitted the best ideas for brand new businesses.
Other organizations - such as business magazines, office supply chains, and other large retailers - often sponsor business-plan-writing contests with financial payoffs, or they award cash and prizes included in their general business contests.
No all-in-one resource tracks this type of thing, which means you need to do your homework by diligently searching the Internet and thumbing through business publications for opportunities. However, the shot at free money might be well worth your time!
Be wary of Web sites that charge for a list of "free money" resources from government grants. Although legitimate grants can be found, it's not necessary to pay on their behalf: You can get yourself a list for free in the Catalog of Federal Government Assistance, at the U.S. government's grant site: Grants.gov.
Incubator: This type of entity or organization, established to aid entrepreneurial development, usually provides shared helpful information on businesses. Sometimes, shared resources refers to a physical location (such as an office building) or just describes access to volunteer or hired professionals that are shared by the organization's entrepreneurs.
Although incubators don't traditionally provide start-up money (in fact, they take only a tiny proportion of stock in exchange for their services), they're still considered an alternative funding source because an incubator provides your business with a range of tools, resources, and services for free, or a lower fee. Since this is money you would otherwise spend during your start-up phase, the quantity of savings and the invaluable assistance (which can accelerate the growth of your business) means free investment dollars.
Locate technology and small-business incubators in your area by contacting the National Business Incubation Association to locate technology and small-business incubators in your area.
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