Published By Janet Gershen-Siegel at October 12th, 2017
Every business needs money, and yours should be no exception. After all, even charities have to pay rent on their offices. Because cash flow is not always a given, particularly for newer businesses, you may need funding. Here are ten ways to get financing for your business.
You can access up to $150,000 in unsecured credit with 0% rates. You can get these amounts and rates, even as a startup. Essentially, unsecured credit is offered without the need for collateral or a show of assets in order to get approval. Instead, the loan (that is the credit) is based upon the borrower’s promise to repay. Generally, you will need a credit score of 680 or better, but you will not need a guarantor.
It’s not a loan. Rather, it is an advance based upon the expected future sales and revenues of a business. You can get 72 hour funding. All that you need for approval is a 6-month bank statement review.
You can generally get approval for 10 – 12% of your annual revenue. There are no collateral requirements. Plus lenders will often lend to as low as a 500 FICO score. And some lenders do not have any credit requirements at all.
Usually, you will need to be in business for over a year and will need to show over $10,000 in monthly revenue. You will also need to have more than 10 monthly deposits. This includes a positive bank balance at the end of each month.
If you own stocks and bonds, you can use them as collateral to get business credit. The rates are usually less than 5%. Plus there are no cash flow or consumer credit requirements. You do not need to show bank statements, and you will still earn interest on your securities. You can borrow as much as 90% of the value of your securities.
Don’t have securities? Then ask a friend if you can use his or hers in exchange for a percentage of your business.
Similar to securities-based lines of credit, you can use your retirement funds (either a 401 (k) or an IRA account) as collateral in order to get funding for your business. There are no tax penalties. In addition, you can still earn interest on your 401 (k) and pay low rates, often less than 5%. You can close and fund in less than 3 weeks, and you can get up to 100% of what you can roll over within your 401 (k).
There are no consumer credit requirements and you don’t even have to show a bank statement. Essentially, the idea is that you are investing your 401 (k) in your own business, instead of buying stocks in other businesses. Plus there are no tax ramifications.
Somewhat similar to 401 (k) and securities-based financing, you are using an asset as your loan collateral. You get a percent of the revenues from pending invoices fronted by the factoring company. The factoring company then goes directly after any business which owed you money, and collects on it themselves. Therefore if a seller owes your startup business $1,000 on a twelve-month repayment basis, you might hand that bill over to the factoring company to get something like $950 in a week.
The factoring company would then collect the total from the retailer. This enables you to extend credit or arrange longer-term payment plans in exchange for other, more advantageous terms (like getting a merchant on board with your new startup business) without holding a lot of what are essentially IOUs for months at a time.
You can get as much as 80% of your receivables advanced to you in less than 24 hours. The rest of the accounts receivable will be released once the invoice is paid in full. The closing takes two weeks or less and the factor rates can be as low as 1.33%.
However, your receivables should be with another business or the government. This is ideal financing if you receive orders but they are not paid quickly – plus it allows you to offer more generous terms to the companies which are indebted to your business.
This time, it is real estate which is used as the collateral, and that can be the land or the building(s) on it or both. You can get 100% of the financing you may need to purchase and rehabilitate residential properties. Lenders will loan you up to 65% of after-repair value. Plus you can usually get a 6-month term, and you can get an extension if you need one.
Rates range from 8% and higher. You will need to have a FICO score of 660 or better and you must be able to demonstrate house flipping experience.
This is vital financing for house flippers, because the banks will usually not touch them, claiming that this is what they consider to be a high risk business. The authorized money is held in escrow and released in draws as your contractors complete their renovations.
One alternative is business credit cards. However, know that business credit cards have to be paid off the same as consumer credit cards. A very high credit utilization rate of over 30% can bring down your company credit scores. This is the amount of credit you use as divided by the total amount of credit available to your startup business.
High utilization can make it harder to get a loan or get another business credit card, so you need to be vigilant with these and pay them off as quickly as is practical.
A business credit line differs from a business credit card as it is more like a debit card. You can borrow up to a certain limit. And then you will only pay interest on the money you have borrowed. You can draw and repay funds, so long as you do not exceed your credit limit. Unlike a business loan, a business line of credit can be for several purposes and not just one.
Crowdfunding works best if the crowd feels an emotional attachment to your product or service. This is why it is often used for companies which specialize in art of some form or another (recording studios, artists, theaters, etc.) or inventions. Plus products which aren’t quite in stock yet may do well.
A good pitch is vital for crowdfunding success.
You may wish to try a company like Kickstarter. However, see to it you read through the particulars, as many crowdfunding platforms will demand that you give all of the funding back if you do not make your objective by the conclusion of the crowdfunding project. Note: Indiegogo has a flexible funding option.
Also, crowdfunding websites will take a percentage of the contributions, and they generally will urge to have you deliver on your promises (so you’ll have to really produce that electric spaghetti twirler or anything else your startup is supposed to be doing).
Donors can become weary of crowdfunding spiels, and standard companies may not do so well. But straightforward gizmos which are not going to really change are not going to bring in brand ambassadors and, by extension, they most likely will not get contributors too fired up.
Insurance agents can get financing by using the commissions from their book of business as their collateral. You can borrow 2-3 times your annual renewal commissions. This is a long term loan.
Get your business financed and watch it grow.
These are not exactly the same thing. An angel investor will commonly invest in early-stage or startup companies in exchange for a 20 – 25% return on their financial investment.
Venture capitalists will give cash to help develop new startup businesses which the VCs strongly believe have both high-growth and high-risk potential. These could be fast-growth businesses with an exit strategy already in place, and they can get up to tens of millions of dollars for investment, networking, and building their company. Essentially, this is a gamble on prospective profits.
Also, venture capitalists will typically look to recoup their investment within a 3-5 year time period. They will also, commonly, want to obtain a piece of your business if not a controlling stake, so be aware of that.
There is also the SBA, which has numerous CAPLines loan programs and SBA Express. They do not provide the loans; rather, the SBA establishes loan guidelines. It’s their lending partners who actually make the loans. The SBA also provides research grants if your company engages in scientific R & D.
An additional option is the microloan, which you can’t even obtain from a standard lender. Instead, you get a microloan from a microlender. Try the Association for Enterprise Opportunity to find a nearby microlender. A microloan is precisely what it sounds like; it’s not a great deal of cash. Still, if your company only needs something like $500 – $35,000, then a microloan could do the trick.
Need a lot more than a microloan? Then request a small business loan for your startup company. Prepare yourself to provide collateral, which can be stock or real estate or similar items. Loans must be paid back in a timely manner or else your company’s credit score will suffer.
You should count on to put some of your own cash into a startup business, but that should not be the exclusive place you turn for financing.
Consider these funding options – and business credit building – as more ways to get financing for your business.