To finance the creation or growth of their enterprises, entrepreneurs can look to a number of sources. Personal savings, loans from friends and family, loans from banks or credit unions, loans from commercial finance companies, support from venture capital firms or investment clubs, loans from the Small Business Administration and other government agencies, and personal or business credit cards are typical sources of startup capital. However, for some business owners, these sources of funding are either inaccessible or offered with conditions or limits that the company cannot achieve or that the business owner deems to be excessive. The capital-hungry entrepreneur in such circumstances has the choice of seeking a number of atypical financing options to obtain the funding that his or her company requires. Selling assets, taking out a loan against the cash value of a life insurance policy, and getting a second mortgage on a house or other property are some of the more popular atypical financing options.
MARKETING ESTATE Part business owners decide to sell some of their personal or company assets in order to raise money for the start-up or ongoing operation of their company. The majority of the time, business owners who have already proven their company’s viability and are looking to expand their operations don’t need to take this occasionally drastic step because their track record frequently enables them to obtain capital from another source, whether private or public. The owner of a small firm should exercise reason while selling either personal or corporate assets. Some business owners who are desperate for cash wind up selling company assets that are crucial to running their operations. In these situations, the business owner might actually speed up rather than slow down the decline of their company. Only surplus stock and equipment should be sold. Similar caution should be used when selling personal property. Boats, antiques, and other items can sell for a respectable sum. Prior to taking this course of action, the business owner should objectively research if the income generated will be sufficient and whether the company’s financial difficulties are a sign of more serious problems.
LOANING AGAINST YOUR LIFE INSURANCE’S CASH VALUE The possibility of borrowing against a whole life policy is available to business owners (this is not an option for holders of term insurance).If the policy has been held by the owner for a number of years and has accrued some financial value, it may be a useful method of securing funds. Up to 90% of the policy’s value may be lent by policyholders, according to insurers. The policy will continue to be in effect as long as the policyholder fulfills his or her commitment to pay premiums. These loans typically have reasonable interest rates, but benefits are typically significantly diminished if the insured passes away while still repaying the debt.
ANOTHER MORTGAGE Some business owners obtain capital by taking out a second mortgage on their residence. The homeowner does have a few benefits from this hazardous option, including the fact that the interest on the mortgage is tax deductible and typically less expensive than what they would pay on a credit card or an unsecured loan. But if the company ultimately fails, this financing strategy can mean you have to give up your house. According to Cynthia Griffin in Entrepreneur, “second mortgages are best for people who want to borrow all the money they need at once and secure set, equal payments.”
ADDITIONAL POSSIBLE SOURCES OF FINANCE Some business owners use franchising or licensing to get money for growth and expansion. In essence, they make money by leasing the rights to a special enterprise or item to other businesses. Other owners of small businesses can join forces or enter into joint ventures with organizations that have a stake in their success, such as clients, suppliers, or distributors. Through cooperative work agreements, barter systems, or trade credit, these business owners can get money from their partners. An additional source of leads for loans from atypical sources is the internet. A searchable directory of unconventional funding sources, for instance, can be found in America’s Business Funding Directory at http://www.businessfinance.com.
In order to establish a firm or supply finances during times of rapid expansion, experts advise employing nontraditional financing, but they stress that small business owners should view it as a temporary solution. “According to Edward C. Hopson, a business loan broker, “you should consider atypical financing, but do so with an eye toward when I can get out of this, not as permanent finance.” When you become powerful, banks will start contacting you.”
