Since the financial crash of 2008, obtaining a small business loan from a bank can be difficult. So how can you find your small business without banks?
Banks want to see a financial track record for your business that proves that you'll be able to repay the money they're lending, according to Bloomberg Businessweek.
So if funding your business through a bank is out of the question, here are five alternative options:
- Crowdfunding. Crowdfunding is the latest and greatest way to fund your small business without a bank. By crowdfunding, several "investors" contribute various amounts of money to your business. Most crowdfunding efforts occur on the Internet on websites like Kickstarter and IndieGoGo. However, the SEC imposes registration and disclosure requirements on companies seeking investment from the general public.
- Family and friends. Friends and family may be willing to lend you some money to grow your small business. Some might ask for an equity stake in your company so they can get their investment back. The downside of having family and friends contribute to the cause is that it may result in disputes over money and uncomfortable family gatherings in the future.
- Get a grant. Companies that serve the public interest, like non-profit organizations, may have luck getting grants to help fund their business. The government has several available grants, but it takes a lot of time and work to apply for one.
- Your personal savings. Sometimes the best way to fund your small business is to do it yourself. If you have some money saved up from a previous job or investment, you should consider reinvesting it into your new business. You may wish to only choose this option if you truly believe your small business will succeed as you'll be putting your personal financial security on the line.
- Venture capitalists. While it's unlikely that venture capitalists will invest in a new business if the business owner doesn't have a prior record of successes, if the idea is profitable enough, you might land yourself some venture capital. However, venture capitalists need to make sure they get their return on investment, so they make ask for a large equity share of your company or exert control over your new business.
If you need more help with the legalities of funding a small business, consult a business lawyer in Philadelphia for more information.