You’ve spent the past few years establishing your business, and the time has come to expand. There’s only one problem: The necessary funds to take operations to the next level simply aren’t available. Must you turn to a bank for a loan, or should you explore other options? The answer depends on your personal financial situation, but these nontraditional sources of funding are worth considering:
Does the idea of asking strangers to fund your expansion leave you a bit unsettled? It shouldn’t, as it could be exactly what you need to get things off the ground. There are many people around the world with the same core values as you who are willing to support your cause. Plus, it won’t cost you anything out the gate to put your vision out there. Just be sure to read the fine print to determine the fees that accompany successful and failed campaigns. Also, inquire about any funding restrictions that may apply; select platforms have stringent barriers to entry, while others are open to the public. For a list of the top crowdfunding platforms, read this Forbes article.
This is another viable funding option, assuming you have the resources on hand. In fact, third-party lenders may ask, “What do you have to lose?” before considering your application, to see how much you believe in your business. And the first consideration may be the contributions you’ve made from your personal assets. Consider borrowing against the cash value on your life insurance policies, retirement fund or taking out a home equity loan. It’s important to note that not repaying an IRA or 401(k) account in a timely manner could result in an early withdrawal penalty of 10 percent and assessment of taxes. Before you borrow against your 401(k), ask yourself these four questions from U.S. News & World Report.
Structured Settlement Payouts
Are you receiving distributions from a structured settlement? Although the proceeds may be generous, it may not be enough to fund your business’s growth. Consider selling your future structured settlement payments for a lump sum to help fund your expansion. To learn more about selling your future structured settlement payments, visit JGWentworth.com.
Venture Capitalists & Angel Investors
If your company is growing at a good clip, venture capitalists may be willing to take a chance on you. But there are definitely a few risk factors (and if you watch “Shark Tank,” these should could as no surprise). Along with the laundry list of stipulations to get them on board, venture capitalists will want their piece of the pie—and it could be in the form of a chunk of ownership. Simply put, they’re in it to win it, and money is the motivation. This isn’t necessarily a bad thing, though, as you’ll more than likely have access to their brain and network.
Angel investors provide funding to entrepreneurs, whether they know them are not, who exemplify a willingness to do whatever it takes to attain success. Simply put, they derive pleasure from giving back to up-and-coming entrepreneurs—with few strings attached. For more on the difference between venture capitalists and angel investors, read this post from Business Insider.
This last option isn’t that nontraditional, but it’s still worth mentioning. The most common among these federal offerings is the 7(a) Loan Program for small, U.S.-based for-profit entities. Applicants must be able to prove they’ve attempted to self-finance their operations and a funding gap still exists. Businesses in select industries aren’t eligible for inclusion, so review the guidelines to determine if you qualify. Visit the Small Business Administration for more information.