In order to start your business you will need funding. This can be one of the most challenging parts of a startup business. The thought of approaching a bank, lender, or venture capitalist can be daunting to most people. But there you are with a great startup business idea and no or little money to get it started. There are options besides the traditional business loan approach. By thinking a bit out to the box and knowing your options to fund your startup business, you can get it launched and be a success.
If you are employed you probably have a 401K retirement plan or an individual retirement account (IRA). You can borrow against both of these accounts. Most 401K plans let you borrow up to 50 percent of your vested account balance. The cap is usually $50,000 and the interest rates are normally smaller than a traditional loan (1 to 2 percent above prime rate). You can withdraw money from your IRA for 60 days. But be aware if you are just one day late paying it back you can face stiff penalties for early withdraw of your funds. Withdrawing money from your IRA isn’t considered a loan, you’re using your money, so you don’t have to pay interest. The downside of these options is if you lose your job the money you borrow or withdraw has to be paid back in a short amount of time.
You could try the old fashioned way of saving money for your startup business. You may want to take on a second job and save that salary toward your startup business funding. If you don’t want to spend the time to squirrel the money away, you may want to go part-time and start your business while you still have your “day job”. This will give you a reliable income until your startup business takes off.
Microloans are another creative way to fund a startup business. How a microloan works is you apply for a small loan from a non-profit company offering loans to startup businesses. Loans can be any amount from just a few thousand to ten thousand. You will have to qualify for these loans. Typically they are offered to businesses which answer a need in the community, or ones who are following a green initiative. Although the amount of money you get from a microloan may seem small, when you combine it with other funding sources it can make a big difference in getting your startup business off the ground.
A home equity line of credit or loan is also another way to fund your startup business. Interest rates are usually fairly low and you can borrow against the amount you have paid on your mortgage. The downside to remember is if your startup goes under you still have to repay the loan or risk losing your home.
If you have a startup business and you need funding, consider these creative methods. Don’t be afraid to think out of the box. Some of the most successful people followed a path not blazed by others. Your startup business needs money, so get creative and get your business off the ground.