When You Can’t Get a Loan for Your Business

What do you do when you can’t get a loan for your small business, for start-up, expansion, or just to pay the bills?  Tough times require tough measures.  If you can’t find a bank to loan you money, there are still other alternative financing sources.  Here are some possibilities: 

Credit card financing.  The National Small Business Association says that small businesses use credit cards more than any other type of financing.  I’ve mentioned before  the “slippery slope” of credit card financing, suggesting that you use credit cards only as a last resort, and only on a temporary basis. Getting behind with a credit card can mean that your personal credit takes a big hit, in addition to causing financial problems for your business.  If you have good credit, try to find a card with zero interest. then switch to another when the interest rate goes up.. Forget the airline miles; low interest is king here.

F&F – friends and family. Family and friends can be good sources of loans, and these loans can be “off the books” so they don’t affect your credit rating. But they can be the scariest form of financing – you don’t want to lose your good relationship with Aunt Marge because you didn’t pay back her loan fast enough.  Even scarier is inviting family/friends to join you as partners.  Think carefully before you consider taking on Aunt Marge as a partner.

Cash value of life insurance. The cash value is not the death benefit (you won’t need the loan if you die!), but it’s the value in the insurance policy that has built up over time in excess of the premium. Cash value is only present in whole life policies, so term insurance won’t give you this benefit. If you have an old whole life policy hanging around, you might want to look at it to see if there is any cash value built up.

The Small Business Administration. Take advantage of their Recovery loans, or other loan programs, like the Patriot Express loans for veterans, or the Rural Advantage program for small businesses in rural areas.

Vendor financing and trade credit- Buy equipment directly from the vendors. You’ll pay a little higher interest cost than from a bank, but you’ll get the equipment you need. Note that vendors will tell you they don’t charge “interest,” but they do have fees and charges that look and act like interest. When you add them all up, they’re usually more expensive than a bank, but they are a good source if you are looking at large pieces of equipment. If your business credit is good, you may also be able to get credit directly from suppliers, like office supply companies.  Basically.  you are getting a credit card from these companies and paying it off over time.  The interest rates on these can be pretty high, so use carefully.

Borrow from yourself. It’s been said that the definition of an entrepreneur is someone who steals office supplies from home and takes them to work. Look through your house, to see what you can find. You don’t really need the best, newest furniture. Can you get by with your old computer? I know a dentist who used good patio furniture for her reception area. Then a year or so later, when she could afford it, she bought new furniture.

All of the above. If you really want to get that business started or keep it afloat, you will need to be even more creative. Adding up funds from Aunt Marge, credit cards, and vendor financing might be what you need to get started in your business.  Most business start-ups are financed on a combination of many sources of funds.

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