By Ruby P. Warthen
If the bank turned down your application for a small business loan, don’t despair. Banks have developed a reputation for turning down these applications, especially when the businesses have no collateral. A declined application does not mean that you’re out of options for funding for your business. Here are some creative ways to get the money that you need.
If you don’t mind losing 15 percent of your accounts receivables, you can use factoring as a means to get money for your business. This process involves passing your receivables to a third party who will give you immediate cash. If your company is showing some growth you can use factoring until you have developed a sustainable cash flow.
You can take out a 60 day interest free loan from your IRA or 401(k) account. Pay the money back within that 60 day period and you’ll have the benefit of an interest free loan without fees. Before you dip into that fund, keep in mind that you could be putting your retirement money at risk.
Do some research to see what grants are available at the local, state and federal levels. Enlist the help of an advisor if you cannot do the research yourself.
Peer to peer lending (P2P)
Sites like the Lending Club make it possible to get loans from total strangers. The loans are subject to a review of your credit score. Lenders will also take your business idea into consideration. Interest rates for these loans are usually very high.
With crowdfunding you appeal to others to invest in your cause, and you’ll repay the investment in some non-monetary contribution. You’ll have to come up with an appealing way to present your idea if you want to get others to invest.
Microfinancing provides small loans, usually less than $10,000, for your business. Again, the goal is to present an appealing idea, but back it up with your experience, sales projections and demonstrate the viability of the business.
Look for smaller suppliers who might be eager to earn your business. They might be more than willing to provide the financing you need. Don’t place a personal guarantee on the loan.
Keep your eyes are ears opened to spot opportunities to win money for your business. These contests sometimes result in substantial sums of money given out to winners.
Friends and family
It is risky business to get money from friends and family to fund your business. A lot of good businesses fail, for a number of reasons. When your friends or family invest in your business idea you need to sensitize them to the fact that the money could pay off, but it could just as easily be lost. There might be benefits from taking the money offered by this group, but you need to be very aware of the disadvantages.
When all else fails, you can use business credit cards to fund your business. There have been many success stories of entrepreneurs using credit cards to fund a business. This option has some disadvantages as well, so beware.
About the author: Ruby is a software developer working for an IT outsourcing company. Her current project revolves around creating financial asset management systems that can be used by different institutions. Follow her on Twitter @RubyPWarthen