Although there are some fortunate individuals who come to market with a lot of capital and no solid ideas, the inverse is far more common. With big banks effectively out of the business of making small dollar loans, it’s also now tougher than ever to secure the financing to get a small business off the ground. However, you might be able to realize your entrepreneurial ambitions by using your own assets instead of a bank.
Use home equity to launch your business
According to this Small Business Trends piece, 25 percent of small business owners borrow against the equity of their homes to support their companies. The reason why should be obvious. It’s much easier to get a home loan approved than a small business loan. Obviously, using your home to secure a loan is risky. If your business folds, you might lose your house. However, if you don’t like risks, you shouldn’t be starting your own business.
Get a loan from an online lender
If you don’t own a house or are unable to secure a home loan, you might want to look into getting funding from an online lender, such as Kabagge or On Deck. Instead of just using credit scores and assets to make their loan determinations, online lenders take a more holistic approach by also examining transaction volume and social media feedback. These services do have steep interest rates, and they require you to make personal guarantees that you will repay your loans, but they also disburse funds to approved applicants within two business days.
Fund your business with your IRA/401(k)
If you’re a working professional who is considering starting your own business, you might be able to fund your startup with assets you’ve earned in your day job. This Entrepreneur piece suggests using your 401(k) to get a part-time business off the ground, however, it’s important to remember if you’re fired suddenly, you’ll only have 60 days to pay back any money borrowed from your 401(k). Additionally, you could use your individual retirement account as a source of funding. Any money borrowed from that kind of account would also need to be paid back within 60 days, but using your IRA to fund your own business might be just the kick-start you need.
This article was written by Mario McKellop for Small Business Pulse