Let’s look at some of the recent news headlines regarding small business lending:
“Why Aren’t Banks Lending to Small Business? Ask Bernanke. ” – The American.
“Are the Big Banks Keeping Their Commitment to Small Businesses? ” – The Wall Street Journal.
“Banks keep lending standards tight for small firms. ” – CNNMoney.
So, the obvious conclusion for those starting new businesses or looking for ways to access capital to grow their existing business is that you or your small business can’t get any financing – right.
Not so fast.
Banks may not be lending (or are only lending to large businesses who don’t really need the capital) but banks are not and have not always been the best options for small businesses or startups.
Most banks won’t touch a startup business – regardless of the economy and very few banks will fund growing businesses as most growing businesses have short-term cash flow issues (something that banks say is too risky and shy away from).
Therefore, banks really don’t matter to your small business when it comes to lending.
So, what can smaller firms do to gain the money they need to get off the ground or expand?
The simple answer is to do what every other business has done since the start of history – find another way. So, put on your entrepreneurial hat and look into these 4 alternative sources of capital.
4 Places To Find Business Capital Today
1) Private Business Loans:
Did you know that there are other businesses out there (big and small) that all they do is lend to small businesses? It is their business (how they make money) and they are pretty good at it.
In fact, in order for these private lenders to stay in business and make profits (just like you want to do) they have to make business loans to companies just like yours – banks do not have to as they have clearly shown.
You are their targeted customers and they are there for you. Private lenders have more leeway as they don’t have regulators watching their every move and as such have created more products (more business loan programs) to fit your individual needs. Plus, most decisions of these lenders are made right there on the spot – no waiting weeks or longer.
How do they do this? Well they don’t look at your entire business or your overall cash flow or your overall profitability. They look to the next event in your operating cycle – where your business earns revenue.
It’s all based on the conversion of assets. Your business lands a new customer, completes that job and waits to get paid. The lender knows that you will get paid and will provide your business needed working capital until that point. Then, you start the process all over again. Thus, these private lenders will lend against your outstanding accounts receivables – not based on your overall profits or the long-term cash flow prospects of your company.
Or, let’s say that your business has orders coming in but doesn’t have the capital to even get those jobs started. Well, these private lenders will fund 100% of what you need to start and complete those orders or jobs allowing you to satisfy your customers and earn that all coveted profit.
Now, clearly these seem like a great option for existing businesses. But, if you are a startup, you just have to work a little harder to either get yourself in that position (i. e. getting orders in hand) or use some of these other options (see below) to position your business to generate the needed accounts receivables or purchase orders required by these lenders.
2) Personal Loans:
Most business owners hate to use personal resources to get business capital. But, when all is said and done – money is just money after all. However, personal loans have been the catalyst for growing new businesses since the beginning of time.
For a business loan, banks want business cash flow, profitability and commercial collateral. Items that most new or small businesses don’t have.
However, personal loans don’t have such stringent requirements.
Home loan rates are at record lows opening up the possibility to tap into home equity for money to start or grow your business. Build your business and use the business to pay off the home equity loan. No different than taking a business loan, building your business and paying the loan off. But, with a home equity loan, you get a lower interest rate and longer term for a lower payment and more flexibility. Plus, these loans are so much easier to get approved.
Or, utilize your retirement funds. Roll over your 401(k) or IRA into your business. Not much difference than in investing in your business or investing your retirement funds into someone else’s business. Plus, since this is not a loan – NO interest, no terms and the ability to pay it back when it is best for you and your business and not in the best interest of the bank or lender.
Lastly, use your personal income to make a business loan to your business. This means keeping your day job (or getting one) and running your business part-time until it is strong enough to support you and itself – all being funded from the money you make from your job.