When investors aren’t an option: 10 alternatives to finance your business

Published: Tuesday, April 30 2013 7:00 a.m. MDT

I am often asked about options to finance a start-up business. Of course investors and bank loans are a common solution. However, a budding entrepreneur simply might not want to bring on investors or can’t secure a bank loan.

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I am often asked about options to finance a start-up business. Of course investors and bank loans are a common solution. However, a budding entrepreneur simply might not want to bring on investors or can’t secure a bank loan. For those business builders who need to follow another path, there are many other solutions.

The following 10 options are attractive alternatives to investors and bank loans and as with any financial decision, there are multiple benefits and risks that must be thoughtfully explored.

Business credit cards

A number of companies provide credit cards designed for business use. These types of cards offer low introductory rates that make the initial months of usage particularly attractive. However, the interest rates are often in the double digits. So when that free or introductory period is up, this can be an expensive option for financing your business. Only those entrepreneurs with the discipline to manage this form of cash should consider it.

Home equity line of credit (HELOC)

If you own a home and have equity in it, then some mortgage companies will consider loaning you money based on the amount of equity you have in the property. A home equity loan can often make it an affordable form of financing. Of course, there will be monthly payment requirements. While the interest rates and write-offs are a positive element, never forget the risk of losing the family home is a real one.

Savings

Sadly, many Americans don’t have money saved for a business or any other use. If you aren’t one of these statistics, you should consider using these funds. Available cash has no repayment, interest or debt schedule associated with it. However, taking money from savings to fund a business is risky as savings accounts are often cushions for failure, not fuel for investments.

Stocks/retirement

This available cash can be obtained without interest or a payback schedule. Unlike savings, there are often penalties and taxes associated with accessing these funds. Consult your financial planner before using stock and retirement funds. Outside of the potential fees and taxes you’ll have to pay, consider these options much like savings in that once they are spent, they are gone for good.

Larger assets

Do you have cars, boats or other larger assets that are valuable? These are assets that can be sold for cash. Think of non-revenue producing assets as a source of money that can be turned into fuel to fund a fast-growing company.

Grants

There are a number of grant programs that support entrepreneurs and businesses. Start by searching government websites for grant programs. While the money is “free,” the level of detail and the requirements to apply can be very laborious. This is a great funding option if you have the time, talent and willingness to go through the grant process.

Competitions

Consider entering any number of business competitions that award cash prizes. Almost all have money that is given with no expectation of payback. Many hours of time and preparation are required to put together a winning entry. If you decide to enter a competition, pick the ones that have the best cash rewards and match your type of business. Remember this is a short-term financial option, not a good long-term strategy.

Revenue based financing (RBF)

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