Finding money to launch your business in a bad economy
Depending upon the size of your small business idea, you most likely won't need millions of dollars to get started. Even if you don't need a large amount of funding, it can be difficult to find the money especially when the economy is bad. During a bad economy, lenders will tighten their lending rules and unless you have a high credit rating, a solid business plan, and enough invested into the business, they will not take a risk by lending you the money.
Many small business owners find themselves dipping into their personal savings account to fund their small business because they just cannot get the financing they need to get started. Google was founded on credit cards, so it has been known to work to look for other financial sources to fund your business, but it's a big risk on your personal financial future if your small business is not successful. What other options do you have?
- Consider small, independently owned lenders. Look into a small business lender that can give you a few small checks to get your small business up and running. While they may only be able to offer you $10,000 or $15,000 you will at least have some of the initial money you need to start your small business. Getting a small loan will give you a ton of confidence because it will tell you that even though the big lenders don't believe in you, someone else does. Having confidence and motivation like this will help you brainstorm different ways to start marketing and turning a profit.
- Private investors. If you really don't want to turn to lenders or credit cards with large interest rates, private investors are a great option. Private lenders generally come in the form of rich family members or friends. Ask them for money and encourage them to share their business idea with their friends. While it may not seem like it, $1,000 can go a long way especially if you have 20 people that decide to invest that much into your new business idea. Just make sure you keep your word and fairly compensate these investors once your business starts to turn a profit.
- Personal loans. You do have the option of obtaining a personal loan to start your small business. Companies like Citi Financial are known for offering personal loans to just about anyone with a credit score above 600. The trick is that they are going to charge you a large interest rate, around 20 percent. Most personal loans are 5 year terms and they allow about $10,000 to be borrowed without any type of collateral.
- Home equity line of credit. Some small business owners have used their own homes and assets to secure a loan. It's a risky venture as the lender will come after your home if you default on the loan. Losing your business is hard, but losing your home will be pretty difficult and terrible on your family. Don't get in over your head and opt for a loan that you really cannot afford to pay back.
- Credit cards. Similar to personal loans, credit cards should be used with caution. The interest rates are high and they are going to get worse in a bad economy. However, credit cards may be your only option. If you have good credit, you may qualify for a credit card that doesn't charge interest for 12 months. This is a great way to borrow the money and hopefully pay it back before the interest rate starts in a year. Proceed with caution because credit cards have a huge impact on your personal credit score and you could be doing yourself a world of damage.