People have come up with some creative ways to fund their companies. You can, too. Let’s look at some of the best unconventional business loans.
While a bank loan might be your first choice for small business funding, it’s not always possible to get approved for that kind of capital. You might consider using a merchant cash advance, which isn’t really a loan at all.
How a merchant cash advance works is you get money now and then pay it back with a percentage of your future credit card sales. You’ll typically need to pay back what you borrowed multiplied by a factor rate. You can find more information about this type of funding right here.
There’s a major downside to using a merchant cash advance: it’s expensive. If you end up with a factor rate of 1.48, you’ll need to pay back 1.48 times what you borrowed. So, if you borrowed $10,000, you’ll need to pay back 14,800. That’s $4,800 in fees on a $10,000 loan. Not cheap.
The good thing is that you can get the money fast – usually a lot faster than with a traditional business loan. And you might get approved even if you have bad business or personal credit. For better or worse, these two reasons are why many companies end up using a merchant cash advance.
Maybe you need to set your sights on lenders a little closer to home. Your friends and family might clamor for the chance to invest in your company, especially if you’ve been successful in the past.
Just be careful about how involved you let them get. You don’t want your family demanding perks or benefits from your business that you can’t afford to offer.
There are also Peer-to-Peer lending sites that’ll connect you with strangers who want to invest in your company. These social lending sources may offer lower rates than some of the options we’ve listed above. This option won’t work for businesses who want to keep their loans secret, as you’ll need to give your loan requirements to who knows who.
If your friends and family are hesitant to invest, you might be able to win them over with this idea: sell them some of your equipment, and then lease it back from them. There will less risk for them since they will own your equipment if you can’t pay back the loan. That means the risk falls on you.
In most situations, this is a horrible, horrible idea. Here are some of the reasons not to do this:
But that assumes you need more than a month to pay off your debt. If you can pay off the card before the APR kicks in, then your credit card might be your best source for the loan. Just know that you’re playing with fire.
Your history of business successes might be more meaningful to investors than your credit rating. So don’t rule out a bank loan without trying to get one. You may be surprised.
There are those who know how to find funding in your particular area. Some of them will work for free. They’ll help you apply at multiple locations, so you can pick and choose the offer that makes the most sense for your company.
To find one, go to Google and type in “[your city’s name] business development center” and see if anything pops up. Stay away from anyone who tries to charge you for this service. You should be able to get this kind of help for free.
Instead of paying your vendors outright, you might be able to pay for the supplies over time. This would reduce the short-term cost of operating your business, which should free up some capital for you to use right now. Of course, this will end up costing you more in the long run.
Here are some out-of-the-box ideas that may be worth your consideration:
There is another option that might work for your company. If you need up to $35,000, consider a personal loan. Our sister site, LoanStart.com, offers personal loans with 7.18% to 35.99% APR. That could end up costing you less than some of the other options from this article.
However you get your money, you should have a plan in place for how you’ll pay it back. Don’t be so focused on getting funds, that you’re blinded by a loan with fees you can’t afford. That’s a recipe for bankruptcy.