The increasing bankruptcies or dissolution among small businesses has mirrored the decreasing confidence of small entrepreneurs have had in the already sluggish economy. Since the start of recession, securing funding for a small business is more difficult than ever. One example is getting credit to start a business venture. Since lenders and investors know the fact that small businesses are more prone to risks, they are getting wiser and stricter on who will be eligible to lend credit. This leads small business owners to pursue alternative funding options and other sources of funding that are often overlooked but might prove to be the start of smooth sailings for a business.
- Home Equity Loans
One of the fastest ways a small business owner can finance their business is to take a home equity loan out on their property. The equity in a home is the difference between your current mortgage and the current market value of it. This type of loan can have lower interest rates than other loan options, but in order to maximize the amount available for the small business, the following conditions need to be met:
- Good track record on payments for primary mortgages.
- The borrower must have a source of income aside from the small business.
- Pass the lender’s assessment on your credit worthiness and current loan balance.
These types of loans usually thrive during a strong economy where there are stable interest rates and the values of homes are on the rise. However, the small business owner does need to recognize that this method carries with it some risks. With this method, if the business does not succeed, the small business owner could lose their home. In addition to that, the deduction for some of your losses will depend on the purpose of loan. If the loan was approved for a business, you may not be able to deduct your losses; but if the purpose is for personal gain and you use it to support your business, you may be able to deduct double the amount of your losses.
- Peer-To-Peer Lending
Peer-to-peer lending has become extremely popular today. While it is now facilitated primarily online, peer-to-peer lending has existed for hundreds of years. In the past, groups of people would come together and loan one individual a collective sum of their money. Once that individual was successful, they would pay back the loan and another individual would be loaned money by the group. Eventually, everyone in the group would have received their loans and become successful. Peer-to-peer lending operates in a similar way today, where many different people offer the borrower a small amount of money. This minimizes the risk for each individual lender and encourages them to loan the money. For more information on this, read this article from NOLO.
- University Credit Union
University credit unions are excellent places to look for a personal or small business loan. It is very difficult to get a business loan through a bank today, but credit unions have been filling the gap. In order to get a small business loan from a credit union, the business owner will still need to be able to show assets and a good credit history. If the business owner has a problem with this, a cosigner is recommended on this kind of situation. Cosigners must have a well established credit history to help a borrower qualify for the loan.
- Government Grants And Loans
Many small business owners may not be aware that there are government loans and even grants for small businesses available. The business owner can contact their local state government to find out more about the programs and options open to them. Many small businesses in particular industries can benefit from government grants. Using government loans and grants does open the business up to inspection, which means that the small business owner will need to be particularly conscientious about their finances.
Brentt Taylor writes housing and finance related issues. He started as a freelance writer year 2009 and became part of MortgageLoan year 2010. You may reach him at firstname.lastname@example.org.