Many first-time entrepreneurs need a loan when launching their businesses. This is nothing to be ashamed of; most business owners end up needing financing for many different needs over the years. The purpose of loans is to help with business growth, after all.
The tricky part for startup businesses is qualifying for a good loan that is comfortable for the company’s finances. Conventional loans have many strings attached and often require business owners to have at least two years of successful operations. Fortunately, several alternative lending possibilities can help.
Should You Ask Family and Friends for Money?
This option can be a double-edged sword. On one hand, family members may be willing to lend you funds completely interest-free. This can potentially save you a lot of money over time. If you have a reputation for being respectful, responsible, and dedicated when you pursue a project, it’s generally easier to convince others to lend you funds for your startup.
Now for the downsides. First, mixing friendship and business doesn’t always go well, for the owner or the person doing the lending. If it takes longer than you think to generate enough revenue to repay the loan, feelings can get hurt and relationships can get ruined. Also, family members may later feel like their loan entitles them to a say over your business decisions, even if they’ve long paid it off.
To avoid problems if you go this route, try to make everything as businesslike as possible. Put the loan agreement in writing, including details about the amount you’re borrowing, how much interest is due (if any), and how much your monthly payments will be. Stick to what you agree to.
Should You Use a Credit Card?
Turning to personal credit cards in search of funding for a new business venture is one of the worst decisions you can make. Credit cards are a bad idea for new entrepreneurs for two reasons: They can make you personally liable for business expenses and they carry high-interest rates. Mixing personal and business finances rarely go well.
Should You Choose Alternative Lending?
Alternative lending is a smarter way to get funding for your new business. It’s possible to qualify for microloans or equipment financing even if you don’t have an established credit history yet. You can get the basics you need to give your company a good foundation, and then apply for further financing as you built up experience and funds.