Running a business is difficult work. It is further complicated by a need to be able to leverage working capital when you need it, to stay strong and competitive. Small business loans are one of the most common ideas shared by entrepreneurs, as far as how to bring money into the business. Yet small business loans are really only one option of many for most businesses. There can be great advantages to thinking just a little outside of the box when it comes to small business financing.
Creative Small Business Loans
Perhaps one of the first means to think of small business loans in a new way is to consider the source. Traditionally, a business loan would be arranged through a bank officer at a local bank. The options were pretty limited geographically, for you often needed to be able to foster a relationship with the bank to help secure the loan. Banks remain a great option for you to consider – but this is simply a starting point.
What about friends and family? Friends and family members are common ways that many entrepreneurs get creative in their small business loans. Depending on the circumstances, you can arrange very unique deals with someone who has a personal interest in furthering your success. A word of caution: Be sure to handle every aspect of your loan in a businesslike manner. Document the specifics, and sign binding agreements. You don’t want to take advantage of someone’s generosity and compassion. Keeping it “legal” will keep the terms of the deal in black-and-white, and help to prevent potential disputes.
What about government programs, or grants? Many aspiring entrepreneurs may believe there are many government programs out there with the funding to offer new starts to businesses all the time. In a way, this is true – but the odds become pretty high that the competition for receiving these awards is going to be thick. You should certainly investigate any specific means for you to take advantage of programs or offers that might be designed to support your business concept, but be realistic in what you hope to discover. A good place to start is here: http://www.govloans.gov/. Qualifying for a government small business loan program is going to typically require a lot of paperwork and waiting, as well as the timing to ensure proper adherence to established deadlines. The SBA will be able to point you in the direction of lenders that offer their 7(a) program, which is the most common SBA program for small businesses. Grants are different than business loans, but are simply not as common as the need for them shared by businesses. It varies by industry, so check if there are programs or specific grants available to you. http://www.grants.gov/ offers you more information, and the means to start your search.
Alternatives to Small Business Loans
In many cases, the need you face in your business is a working capital need. This simple distinction actually means that there might be a variety of ways for you to handle the need and get the money. By taking small business loans out of the box, you often need to redefine the way you describe what you are after. The results can mean more opportunities – but be sure to carefully pinpoint and measure any additional risks you are assuming in trying a different option.
Leases – Leases, for equipment or other necessary items in a business, is often a smart alternative to buying the things needed for normal operations. For example, a sandwich shop can lease ovens to bake bread and lease deli slicers and refrigeration units to handle the daily workflow. By leasing rather than buying these items, the business owner is limiting his business’ exposure, assuming less risk, and likely, reducing the capital needed to receive the items. This shows how leases can be used as a smart alternative to small business loans, and it is just one simplified example of many common scenarios found in normal small business activity.
Cash Advances – There are two different types of cash advances small business owners often consider a credit card cash advance, and a Merchant Cash Advance (or business cash advance), which is based on the sale of future credit card sales. While most experts agree that these means will both carry higher risks and potentially greater costs for the business owner, they are common alternatives to small business loans. Why? Because they use a different set of criteria to measure and evaluate risk, which opens the doors to those with challenged credit histories. The risk for missing a payment on a credit card cash advance can mean a dramatic penalty and change in the interest rates charged on the remaining balance. Merchant Cash Advances take a portion of the businesses credit card sales over time to repay the advanced capital – but this is sometimes more than a struggling business should take on. In both cases, when used prudently and by handling the responsibility as soon as possible, there definitely can be benefits to using these alternatives. However, if your business is struggling, assuming more risk is not typically the strongest direction for you to be taking – so proceed carefully.
Refer to the consul of trusted advisors (not sales reps) before making any decisions about business loans. Be aware of what completing an application means – not all of them are free, or without obligation.
In the end, it’s perhaps best to think of small business loans as a necessary question to ask in your business from time-to-time, a question that might have many right answers at different stopping points along the way. Being creative in your approach and open in what you are willing to research can offer you many potentially effective new business financing directions to explore. The choice is yours – be judicious.
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