With the rise of ecommerce and the fall of many beloved retail chains and smaller brick and mortar enterprises, up-and-coming entrepreneurs are creating innovative startups to satisfy the latest market trends. But what if you have a ground-breaking idea without enough capital to launch? Chances are that a traditional bank loan is not an option when creating a business that has yet to establish credit, revenue or profits. However, with a strong line of personal credit, home equity or a substantial retirement savings, among other factors, starting up that startup is within reach.
Personal loans
With a credit score of 700 plus, securing a personal or bank loan is a piece of cake. There are many outlets including online sources to choose the best option for your venture. However, according to Fundera, loan amounts generally won’t exceed $40,000. Therefore, you may need to combine multiple sources of funding. Startups should come equipped with a strong business plan in tow when applying for a personal loan.
In addition, homeowners have access to home equity loans to finance a small business. Interest rates for personal loans and home equity loans vary upon credit and the type of loan. Be smart and aggressively hunt for the loan that best fits your budget.
Community-based or non-profit loans
Community-based loans or non-profit business loans are ideal for women and minorities. They are designed to help boost the local economy within the community. These non-profit lenders are seeking individuals with good credit and great character. As mentioned above, Fundera strongly recommends a powerful business plan to obtain community-based loans for startups. To find non-profit business loans in your area, simply search your local government website.
Retirement funds
According to Fundera, utilizing retirement funds for startups are ideal for younger business owners with “lots of retirement savings.” A ROBS or Rollover for Business Startups requires a 401(k) or another eligible retirement account. You will not have to pay an early withdrawal penalty, but you must register your business as a C-corp. This option works well for startup entrepreneurs who have 100 percent confidence in their business plan. However, this method runs you the risk of losing it all if the market or your new business venture is unsuccessful.
This article was written by Deirdre Haggerty for Small Business Pulse