Alternative Sources of Funding for Small Businesses

With a struggling economy, many banks, financial institutions and lenders are more reluctant to give money to borrowers even with good credit.  Many consumers who want to make extra money outside of their usual employment or those unemployed looking to make their own job, may feel they limited options in funding a business.  If you have bad credit, been turned down by the bank or are seeking alternative options, the following suggestion may give you additional ideas:

Peer-to-Peer Lending: Also known as P2P, this option is available for those with various credit backgrounds.  The better your credit history, the more likely you’ll qualify.  There are several online websites that allow people to loan money to other people.  Basically, you’re obtaining a loan with dealing with a bank.  Depending on the amount you want to borrow, one or more people may contribute to it while everyone agrees to terms on how to repay the loan. Loan seekers may obtain a loan up to $25,000.

Borrowing from Family and Friends: While these people have known you longer than anyone else, at the same time, many are reluctant to ask family and friends since financial issues have been known to strain relationships. But if everyone involved can be responsible and honest under the circumstances, it can be an effective solution.  While many may discuss the need for business funding with friends and family first, some may not ask before asking the bank.  There are websites available to help you create an agreement for your loan.

Tapping into Retirement: Many financial experts are not too fond of the idea of touching retirement funds early, but with good reason.  Unfortunately, more people are getting to retirement age only to be still working because they didn’t have enough saved.  If you plan to retire, you’ll have to review this option carefully.  There are penalties if you obtain access to the funds early. Some people are able to use a portion of the retirement funds with other funding to help their money stretch.  Using retirement funds may not be a bad suggestion if you want to start a small business after you retire to stay active.

Seller Financing: This is more of a business-for-sale transaction that has the buyer willing to finance part of the business.  Part of the sale is done in cash with a promissory note drawn for the buyer to repay the remaining amount.  A seller-financed business helps offset upfront costs and likely gives more access to funds to those turned down for traditional funding.

 

Andrew is a financial blogger and journalist. He writes on subjects from avoiding payday loans to tax reduction to where to find the best mortgage rates.

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