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How Small Business Owners Can Gain More Financial Support

Gaining financial resiliency is highly critical to any business, whether a fledgling venture or an established enterprise. Unfortunately, the economy sometimes can become highly volatile, negatively impacting business income streams.

Miriam Elbaz
Miriam Elbaz
April 28, 2021

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Gaining financial resiliency is highly critical to any business, whether a fledgling venture or an established enterprise. Unfortunately, the economy sometimes can become highly volatile, negatively impacting business income streams. 

Seeking funds for additional capital can take many forms. If done through traditional lenders, expect to jump through a lot of hoops. Financial support through loans from these institutions don’t come easy, and they’re typically subject to various requirements and conditions. 

Some funding support may come easier, but the chances of raising your targeted amount may not be guaranteed. In some cases, and depending on your capacity to pay, you may need to consider two (or a few) options.

Identifying the appropriate funding channels to scale your business entails some considerations. Here are seven financing support options for your small business, along with their accompanying risks or downsides.            

1. Monetizing Personal Assets 

While some may feel strongly against using one’s personal savings or properties to fund a business, it actually happens more often than you’d imagine. In the majority of cases, a small business owner will opt to sell some valuable assets to raise additional capital.  

Personal cash savings, expensive jewelries, real estate properties like houses and lots and other things that you can exchange for cash may be considered. The only risk is that, if your business doesn't take off, you and your family may become homeless in a few months, as well. This isn’t a good prospect; hence, most entrepreneurs would rather choose other options over putting up their homes and properties for sale.  

2. Apply For a Bank Loan

A traditional bank loan is likewise a good option for small businesses, especially if the owner has a good credit standing. Unlike the other options, though, a bank loan will take a lot of time and patience, as you’ll probably be subjected to various layers of screening.  For instance, you’ll be asked to show your credit history to prove that you can pay. Banks will also ask you to submit a lot of requirements, such as a business proposal and a financial projection for your venture. 

Banks have various lending products, and there’s almost always one that’s suited for small businesses. They’re typically offered with lower interest rates and flexible repayment options. Some companies ask for collateral to make sure they’ll get paid.

Some lending institutions are less stringent though. For instance, if you’re a business owner with a good credit history but doesn’t have a formal proof of income document, there’s a tailor-made loan for you. Learn here about this option.

3. Retirement Loan 

If you live in the United States and are quite close to retiring, you may consider borrowing from your retirement funds There are two options to choose from: 401(k) and 403 (b) plans. 

These accounts are named after their sections in the US tax code. The 401(k) plans are provided by employers or private companies to their qualified workers who pay taxes through payroll deduction. On the other hand, 403(b) plans are offered by non –profit organizations and government agencies.  

You may also choose to tap your internal revenue account (IRA). Also called the Roth IRA, it’s a retirement account that provides both tax-free growth and tax-free withdrawals. If you’re 59.5 years old and had your account for more than five years, you may qualify.

This can compromise your retirement funds in case your bright business idea wavers though. So, take this option with extreme caution. 

4. Loans From Friends And Family

Asking family and friends for financial support for your business might be a viable idea. Using this method helps you get rid of sky-high interests and the prepayment penalties for business loans imposed by banks and other lending institutions. 

There are two ways in which you can go about this. First, you may ask your family members to become an investor or business partner. This goes without saying that you need to share your revenues with the relative or friend until you’ve fully paid your loan off. If you don’t want to share your income, ask to borrow cash from them upfront. One way of assuring them that you’re willing to pay back is to offer an interest or a collateral.  

It’s best if you draft an agreement and follow all the conditions to keep your relationship with them. This arrangement could either cement your bond with your favorite person, if your business goes well, or it could quickly turn sour if the promise of timely returns falls short.   

5. Get A Credit Card

Maintaining a personal credit card and keeping your account updated is one of the ways you can improve your credit score. This can also be done for your business.  

Getting an exclusive credit card for your business may be plausible if you have a good credit history. Your business credit line may not be as high as you’d expect, so if you need a hefty amount, you’d need to supplement this with other types of financial support. If your business needs incremental amounts for small-scale purchases, this may be a good option.   

Keep in mind, though, that banks may impose higher interest rates on credits cards compared with other types of lending products. You’d also need to justify to the bank how you’re going to spend the borrowed cash.  

6. Crowdfunding Platforms

Business owners can take advantage of the onslaught of digital apps and platforms offering various types of help. These channels can be used for any form of cause or advocacy. From asking for help for a personal financial challenge to seeking funding support for specific organizations, online crowdfunding sites could help. 

Some sites, though, are tailored for a specific category. There’s one for small businesses that are seeking additional funding, and you may want to use the said channels to raise funds. This method takes time, and you may want to use a clever marketing campaign strategy to “sell” your idea.    

The downsides? You can only access the funds once you reach the fundraising goals, and the site may take a portion of your earnings, as payment for facilitating fund generation.    

7. Alternative Financing 

Apart from traditional lending institutions such as banks, one can also make use of alternative financing to raise funds. Alternative lending is a catch-all phrase for companies other than banks that offer lending products to small businesses and individuals, which may include financing companies that offer online lending  

When borrowers can’t access bank loans for one reason or another, applying for a business loan with alternative financing companies can be a great alternative. Overall, alternative lenders are more flexible in terms of accepting repayments, require less requirements, and release funds faster compared with banks and other traditional lending firms.   

It can be challenging for first-time borrowers or fledgling businesses to use this option though. That’s because one of the main requirements is to have an already operational enterprise that’s also financially sound.   

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Final Thoughts 

Whether asked for by the bank or not, you should have a clear plan on how you’re planning to spend the borrowed money. This is to ensure that none of it goes to waste or will be spent outside of its intended use.  

Remember that all lending companies, whether traditional or alternative, and even your families and friends will need to have assurance that you’re going to pay back. Offer them assurance by showing how and why investing in your business is a good risk. 

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