3 Uncommon Ways to Finance Your Business
In 2020, many establishments closed, and people headed towards unemployment. COVID-19 severely impacted a lot of industries which led to a drastic rise in unemployment. Now that things are gradually getting back to normal, people are trying to start from scratch, especially in business opportunities.
However, the credit industry is still volatile as banks are more strict with their loan requirements, and venture capitalists are more careful with their investments. It means that getting business funding is now much harder than before. Desperate times call for desperate measures, and with that in mind, many people turn to uncommon ways of funding their business, and we will share some of them below.
Just remember that most of these examples are situational, so you should pick one that is most suitable for your circumstances.
401k
If your business requires less than $50k to start and you have a solid repayment plan, borrowing money from your 401k might be the best option for you. The average retirement account balance nowadays is at an all-time high, and the number of individuals who are sure to be millionaires when they retire is increasing.
With all this money, people tend to think that starting a business is one effective way of increasing their retirement savings. However, before you go ahead and take out a loan from your 401k, there are some things you need to check.
Generally, taking out a loan from your 401k to start a business is quite a bad idea. So, only use this to finance a business when:
- Your credit score is not high enough to consider taking out a traditional business loan.
- Your plan allows you to take out loans in the first place.
- You need less than $50k.
- You intend to stay at your job while handling the business.
- You have a solid repayment plan.
In short, you have to make sure that you have no other option for your business financing because taking out a loan from your 401k to start a business is not a good idea.
If you’re still hesitant, you can talk to your employer about it or call the HR department. A huge reminder that you need to repay as soon as possible to have your 401k benefits back, especially the employer matching from your boss.
Home Equity
There are a lot of lenders out there who are willing to offer you loan products for your startup. You can even go to a lender for bad credit loans if you aren’t applicable for traditional business loans. If you have equity in your home, you can use it to get a loan or a line of credit to fund your business; but you risk losing your house with this.
On the other hand, home equity loans are a nifty way of turning your equity into hard cash. Lenders typically don’t restrict you on how you should use that money, so you can use it to start your business.
You might be able to use your home equity to fund a business, but that doesn’t mean it’s necessarily a good idea. You’re better off using the traditional ways of funding a business.
But if you’re reading this article, those options might already be off your table. So here are some pros and cons of using your home equity to start a business.
Pros
- It’s easier to qualify for a home equity loan or HELOC.
- If you have built good equity, you get a higher limit.
- They have a low-interest rate.
- They have longer repayment terms.
Cons
- You risk losing your house.
- There are upfront costs.
- Only applicable to homeowners.
Bartering
Whether you are starting a business or keeping a new business afloat, bartering is a good way of acquiring working capital for your business. By definition, bartering means exchanging goods and services for other goods and services.
So how does it work? Unlike a cash transaction, the barter process requires no amount of money between the trading partners. Instead, you have barter dollars that you trade with your partner.
Barter dollars are similar to real-world dollars at income tax time so make sure that you report the market value of goods received in their tax returns. In short, if you’re short on money, bartering is a good way to acquire more funding for your business. And not only that, but it can also help you market your business, which will be a great way to retain connections for the future.
Final Words
The economy is still very convoluted, even if it has recovered greatly after the pandemic. So it can still be quite challenging for an entrepreneur to secure business funding for their startup. If you can’t secure financing the traditional way, there are some uncommon ways to do that, and the effective ones are listed above.
