Nine Ways to Start a Business Without a Traditional Bank Loan
If you’re trying to start a business without a bank loan, you have viable options available. You want to compare the various options available to make sure you get the best rate. Our list highlights a few options you’ll want to seriously consider to get your business off the ground and running.
1. Angel Investors
If you believe you have a solid business plan that the public will embrace, asking people to invest in your business is a great option. An angel investor is a person who invests in startups, or early-stage companies they believe will do good. It’s an excellent way to earn your money fast, but these investors do have a catch. In return for investing in your business, they’ll ask you to pay between 20% and 25% as an investment return.
2. Keep Your Starting Budget Low
Your business costs will include expenses like furniture, office space, taxes, energy bills, and more. To help offset these costs, think about alternative ways to fund them. Rent an office space that is furnished and ready to go. Hire freelancers, or consider hiring staff on a short-term basis. Outsource your work, or consider having an online business rather than a physical location. These simple steps will help keep your budget low.
3. Peer-to-Peer Lending
This type of lending lets people lend money to businesses in return for better interest rates. You’ll normally get the funding you need much faster than a traditional bank loan, and you’ll pay less in interest. There are peer-to-peer lending platforms online that you can fill out a business profile to find investors. If someone likes your idea, they can invest and get their money back plus interest.
4. Friends or Family
It’s usually not a good idea to mix business and family, but it’s possible to approach your family and friends and ask for funding help. However, you don’t want to go in unprepared and ask for help. Have a folder with your business ideas and your expected growth projections. This can help instill confidence that they’ll get their money back. Include payback dates as well.
If you’re leery about repaying the money you get for your business, consider applying for a business grant through the Small Business Administration. They have grants available for businesses in different niches. You can use the funds you receive to pay off any business debt, start your business, and cover operational expenses. There are very strict requirements for these grants, so it’s important you review your application and supply any documentation required.
Finding a like-minded partner to go in on your business have several benefits attached to it. Your partner could come in and take care of promotions, accounting activity, advertising, or they can brainstorm ideas to boost your business prospects. The investor usually gives you the funds you need to see your business ideas come to fruition in return for a stake in the company. Many take shares or a percentage of ownership in return for the money.
7. Reinvest Your Profits
If your business starts to turn a profit, you can reinvest that money back into your business. Instead of indulging yourself because your business has started to turn profits, use it wisely. Take your money and put it back in your business to improve your products, services, or situations. You want to make your business grow and be more profitable, and this means reinvesting.
8. Business Credit Cards
If you’re someone with decent credit, a business credit card can help you with smaller expenses like any supplies you need. These credit cards are easier to get than a loan. They can also have considerable credit limits attached to them. Cashback and rewards are nice perks with some of these credit cards as well, and it can save your business money. Just keep your personal spending off this card.
9. Home Equity
If you’ve had your home for years and it has equity, you can use this for your business. Eligible people will have a good credit history, and your home needs at least 20% to 30% equity. If the lender approves you, you can borrow up to 90% of your home’s equity to fund your business. You’ll repay this over the next 5 to 15 years. There are costs and fees you have to keep in mind. If you fall behind and can’t pay your loan, you’ll lose your home.
It’s possible to start a business without a traditional bank loan. The nine possibilities we outlined are things you can check into and see which one will work best for your situation. It may not be possible to get approval for all of them, but even one can help you get your business up and running.