Money to Start a Business

Owning their own business and being their own boss is a dream to many people, especially in these days of uncertainty.

Thursday, September 30th 2021
Money to Start a Business

Owning their own business and being their own boss is a dream to many people, especially in these days of uncertainty. Starting a business can be as challenging as it is exciting. You probably have many great ideas of what kind of business you want and what you hope to accomplish. Unfortunately, starting a business requires not just time and commitment but also money. Do you have savings all set up to get your business off the ground? Are you hoping to get a business loan? What are your options? Here are some great ways to get the money to start a business.

Home Equity Loans

If you own your own home, this can be a great help in getting the money needed to start your business. Even if you think your home may not be worth all that much, you may be able to get more money than you’d think through a home equity loan. How home equity loans work is that you can borrow off the value of your home. You will be putting a mortgage on your home and making monthly mortgage payments, but it can also provide you with the cash you need to start your business.

Home equity loans usually come with a lower interest rate than conventional loans, so you’re saving money there. Most home equity loans help the aspiring business owner put down a down payment or reduce the amount they’re required to have as a down payment. If your home has a high value, you may be surprised at the amount of money you can get from your home equity. If, for instance, your home is valued at $150,000, you may be able to get a home equity loan for up to 80 percent of the value, which is about $120,000.

Peer to Peer Lending

Aspiring business owners who don’t wish to go through traditional bank loans often find peer-to-peer (P2P) lending a very beneficial alternative. They are also often used when the business owner can’t get a loan through a traditional lending institution. With P2P lending, you’re completely skipping the bank and are introduced to a whole network of internet-based investors.

Although you may not need to have excellent credit for P2P lending, your interest rates are typically determined by your credit scores. Peer-to-peer lending is not only popular with the business owner but also with the lender because it allows the lender to invest in numerous projects and make even more money.

Credit Cards

Credit card usage is higher than ever before. They can be used for just about anything, including starting a business. They’re also a great way to fund many of the expenses involved in starting a business. You will need to have good credit to get a business credit card, but having one can be very beneficial to the success of your business startup. Business credit cards often come with low-interest rates. Some may even offer an introductory 0 percent financing. Businesses with an LLC or sole proprietor generally have an easier time getting a business credit card.

Revolving Loan Funds

Also known as short-term or microloans, revolving loan funds (RLF) are loans that are designed to help the potential business owner as well as the community in which the new business will be located. For this reason, they are considered as economic development tools. They are generally chosen by potential business owners who might not be eligible for a conventional bank or business loan.

RLFs are typically offered by non-profit organizations, area economic development agencies, and cities. They are also popular because the program is more focused on the actual business, and what it can do for the community, than on the borrower’s credit scores. Revolving loan funds may be for as low as $500 or up to $150,000.

Bank Loans

Conventional bank loans are probably the most popular funding method for starting a business. However, they can be difficult to get. When you borrow money to buy a car, the bank has the car as collateral. When you’re borrowing money to start a business, the bank has no guarantee that the business will be successful enough for you to be able to pay off the loan.

If you are considering taking out a bank or business loan, you will have to provide the bank with financial information such as business plans, projected profit and loss, financial statements, and a list of your expected expenses and income. It’s just easier to get a bank loan if your business is selling an actual product that can be considered equity and collateral. You will also be required to have a good credit score.

In addition to conventional bank loans or business loans, aspiring business owners can also consider guarantee loans. As their name indicates, guaranteed loans are guaranteed or backed by the federal government. They may come through the U.S. Small Business Administration (SBA) or the United States Department of Agriculture (USDA). Although you will still be getting the money from a bank, the government will guarantee part of the loan. Guarantee loans are popular with both banks and the business owner. They’re kind of a win-win situation for both parties.

Personal Assets

Although most of think we don’t own much in the way of personal assets, we often own much more than what we think. If the things you own have some value to them, you may be able to use them as collateral on a bank loan. These items must be yours, and they cannot be used in the business. These might include jewelry, gun collection, vehicles, stocks, boats, vehicles. When you applying for a loan, be sure to list these items when you fill out a personal financial statement.

Online Lenders

We’ve often heard it said that there is nothing you can’t find on the internet, and this includes online lenders to help you start your new business. Getting a business loan from a traditional bank is getting more difficult every year. Even borrowers with excellent credit are having difficulties in obtaining loans. Online lenders make it a lot easier to obtain money to start a business. Some online lenders even offer SBA-backed loans.

Online lenders are a great alternative to traditional banks. They have an easier application process and require less paperwork. They also have a shorter waiting period for approval. You may pay higher interest rates but should have your money faster and easier. Not only can online lenders help give you the money you need to start a business, but they also offer an opportunity for a borrower to build his or her credit. While you're getting your business going, you're improving your credit.

Starting a business is not only challenging and rewarding but can also require clear thinking and some great organizational skills. You may really be committed to starting your own business, or you may actually have started one already. In either case, in order to be successful, you need great organizational skills and must be familiar with business laws. The SBA offers some great tips on starting a business as well as what you need to do and what you need to know.