So you’ve got a killer app idea and the know-how to make it happen. The problem is you don’t have the money to make your dream a reality. Making matters more difficult, you also don’t have a business credit history that would help you qualify for a small business loan.
So your only option is to max out your credit cards, right? Wrong. You have other options, even without an extensive business credit history. Before you pull out your plastic to finance your startup, read about your options below.
The Problem With Startups
Let’s just get it out in the open: Startups are the absolute riskiest businesses from a lender’s perspective. That means that you’re probably going to have a harder time than a more established business getting funding any way that you look at it. With that out of the way, let’s talk about what your options are.
Especially for those who don’t need a ton of money to get the ball rolling, a microloan from the Small Business Administration might be just what the doctor ordered. The average microloan clocks in at $13,000, so if you need much more than that, you’re still going to have to secure the balance of your funding elsewhere.
The SBA’s 7(a) loan program exists specifically to help people start new businesses. The downside is that physical assets are generally required as collateral, and the loan can take months to process. So if you’re short on time or you just don’t have anything to offer up, you might consider trying your luck elsewhere.
- Related: Small Business Guide to SBA Loans
Are you starting a business that’s going to sell a product you think everyone would pay to have? Are you certain that you can actually deliver this product in a timely fashion? Consider crowdfunding your startup on a site such as Kickstarter. While some people have likened crowdfunding to a sort of online begging, it can also be thought of as a 21st-century method of preselling your products before you make them.
Presales aren’t the only way to crowdfund, however. You can also sell equity in your company to potential investors. In this case, you don’t need an attractive product ready to go so much as you need a business plan that will appeal to potential investors. Easier securities regulations are making this a lot easier than it used to be. You can effectively reach out directly to potential investors rather than having to go to a big, faceless bank to get your cash.
If you need a lot of money (more than $100,000), this might not be the best option. And, of course, there’s always the chance that someone else will see and steal your big idea and make it a reality before you’re able to.
If all you need is a little bit of cash and you’re certain you can get the money back (or at least comfortable with the risk), credit cards can be an option. Consider getting a new card with a low or 0% interest rate to pay as little as possible when repaying your money.
Tread lightly here and opt for the lowest interest rate you possibly can. This is absolutely not an option for people who need several thousands of dollars.
Friends and Family
Your last option is to ask your friends and family to invest. Why is this your last option? Simply put, because if you default and fail to pay them back, you haven’t just failed to repay a loan, you’ve also put a serious strain on a personal friendship or family relationship. Exhaust all other options before going this route.
You can get the money for your startup, even if you don’t have business credit. Work through your various options, leverage multiple streams where it makes sense, and change the world with your business.