How to Fund Your Business Without Creating Debt!
Q: If I want to get a small business loan, but am having trouble getting one from a bank, what are my other options? J. Bosworth Queens, NY. USA
This is a great question and one that I am actually helping two of my clients with right now. Financial stress can take a toll on us like no other, especially when so much is at stake. You may have been told that going to friends and family for business funding is a possible alternative, but I am going to strongly advise you against it. With all that is going right now, I am going to give you a plan to create your business on a solid foundation and as close to debt free as possible and then give you a sound alternatives to traditional debt funding for your business and reduce your stress levels regarding funding your business.
First, I would like to touch on a few of the possible reasons that you’re having trouble with the bank and some misconceptions about small business loans. Small business loans are usually considered by the bank to be higher risk than some other types of loans such as mortgages that are borrowed against real property that can be sold to recover most if not all of the loan should it go into default. Unless you own the building you do business in (not including your home), you most likely don’t have any “real assets” to borrow against thus making your loan a higher risk. The take away here is not to look at this as a personal rejection. In fact, your banker may have been doing you a favor. I am not a real fan of small business’ acquiring debt in the first place. There are times when you could use a little cash flow help such as when you need to purchase additional inventory. Here are two possible options
f you are purchasing a large quantity of inventory, you had better already have a buyer for it. They should have made a deposit and given you a purchase order with the balance due on delivery. With these two things you could go into your bank and ask for a business “Line of Credit”. This is for short term use only and you should never carry a balance on this for more than thirty days.
If your bank loan need is more long term, I have a second alternative for you and a strong word of caution. Depending on just how much you need and why you were looking to the bank for help in the first place, you could do one of two things. First, set up a dedicated revenue stream and apply all net monies to whatever you were going to borrow the money for in the first place. This way you are able to fund your project without debt and when your project is completely funded you now have an additional source of ncome to use on other business growth projects. If this is not an option at the current moment, you might want to consider going to a venture cap company and taking on a short term investor. They are all about making money so any insights they may offer will only serve you to become more successful. Usually they will invest a large sum of cash into your business for a percentage of ownership and profit. When they have made their money they will want to get out and move on to the next deal. So though it may feel like you are giving up a lot of ownership at the time, remember this is just short term and if they make money so will you.
Now a strong word of caution. Never, and I mean NEVER, risk your own assets to cover business expenses. Don’t take a loan out on your house, don’t max out your credit cards, and don’t take loans that are guaranteed by you personally or against your personal assets. If your business venture should run into trouble you don’t want to also end up homeless. There is also one other reason people don’t often think about when using their own assets. Knowing what you have personally put on the line will often cause so much added stress that you may find yourself very fatigued and not always thinking clearly. Decisions and choices may be made that are not well thought out and that will in fact, lead to the eventual end of your business. A large part of being successful is making good choices and decisions and you can’t do that if you are exhausted operating in a mental fog.
One last note, borrowing from friends and family is nearly always a bad idea. I have rarely seen it end well with all parties still feeling good about each other. If you want to loose a friend or relationship, this is a very effective way to do it. You are in the business world and it is better to operate your business accordingly, using the alternatives I mentioned above.
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If you would like more step by step guidance to on understanding on how to financially structure your business, I have created The Small Business Toolkit with simple fill-in-the-blank templates to help you secure your businesses financial future. If you have a different resource, that’s okay. It’s just important that you do it. There is a lot more to it than what I can convey here, but I hope this has helped a little. In The Small Business Toolkit I have already done most of the work for you, so all you have to do is just fill in the blanks to a few questions and voila, you have created a secure financial foundation for your business ! You can get yours here!
If you scroll down just a bit further I also have a collection of more success tips. Just click on any of the links. If you have a question about your business please feel free to Contact Us and send a personal message. We love hearing from you and will respond just as quickly as we can.