10 Ways to Finance Your Small Business – The Last 5

Yesterday, I started a post about 10 ways to finance a small business, but only covered the first 5. Just to recap, they were:

=> Using credit cards
=> Accounts receivable factoring
=> Getting a bank loan
=> tapping into your 401(k)
=> Crowd funding

Of course, they all have advantages and disadvantages, but other than factoring, I think the first 5 are heavy on the downside.

The Final Five

Once again, I have chosen the 10 from an article on Inc.com, but they are all pretty well known. Even so, as the article says, “But given our current state of affairs, securing funds is as tough as ever.”

With that in mind, here are the remaining 5 with my comments in brackets.

=> Trading future earnings for funding now (This is often structured to be repayment of future lifetime earnings!). If you can’t repay? You run the same risk of default as with a bank loan. And if you hit it big, you are paying the rest of your life.)

=> Attract an angel Investor (notoriously difficult to work with and they take a huge stake of the company in return. Also, if the business doesn’t grow as they want, they simply pull the plug. Often, they can provide very valuable business advice to a company that is trying to get to the next level, but it does come at a steep cost, both financially and in terms of management independence. And in an economy like the present one, they are choosier than ever before.)

=> Secure an SBA Loan – (In the first place, there are no “SBA loans”. The SBA just provides a government guarantee backing a normal bank loan to small businesses. However, Congress just pulled the plug on the backing of these loans so banks will simply put the same stringent requirements on these loans as on normal ones. In addition, the SBA can not guarantee a loan if the business has any other methods of securing funds – see the rest of this list.)

=> Raise money from friends and family – (You may have already tapped this source dry starting your company in the first place. You can still try, but keep in mind there can be some heavy emotional involvement with those so close to you if something goes wrong and you can’t repay on time, or at all.)

=> Microloans – (This is a relatively new innovation in the world of lending whereby small investors pool their money to provide funding for entrepreneurs or small businesses who need funds for equipment purchase or to take on new projects. They tend to be small ($500 – $30,000), but offer a true alternative to bank loans and usually have fairly low interest rates attached to them. These loans can be as small as $100, but in some 3rd world countries, that is enough to put someone in poverty on the road to a degree of financial independence.)

My 2 Personal Choices for Small Business Funding

I’m going to plug for factoring, since it can be the easiest, fastest, most flexible of the 10, and is the one that does not involve taking on debt, either long-term or short-term.

But, there is one other option open to the small business owner that doesn’t involve borrowing from anyone. I have talked about this in many of these posts because it is the reason that this blog even exists.

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