You want to start a business. And you have more than a wisp of an idea. You know what you’re selling, and how you’re selling it, and who you’re selling to. You’re ready to go.
Well, almost ready. You need cash, and as the saying goes, it takes money to make money. And you don’t have it. So where can you get a business loan? You have several options, from the conventional and fairly obvious to something resembling a Hail Mary pass.
Go to your bank – or a credit union.
This is often not as easy as it sounds. Sure, banks lend money for businesses all the time, but you need to have good credit, and preferably excellent credit, and even that may not be enough. It helps if you already have a business – and if you don’t, a loan officer will want to see a business plan. A really, really detailed business plan.
All of that said, it’s best to go to the bank first, without a business plan, and it’s fine if you haven’t written it yet, says Hal Shelton, author of “The Secrets to Writing a Successful Business Plan.”
Shelton says that when you’re approaching the part of the process where you know you’ll need revenue to start your business, you should set up a meeting with your bank’s small business loan officer (and it’s always best to start with the financial institution you currently bank with, since you’re a known entity, Shelton says).
“I encourage my clients to go in with no business plan,” says Shelton, who is a mentor at SCORE, a well respected national nonprofit that offers business education and free mentoring. (In fact, if you’re still stuck on how to get small business funding after reading this, I highly recommend meeting with an advisor at SCORE and getting whatever advice you can. I’ve been writing about small business issues since the 1990s, and I’ve interviewed numerous business owners over the years who have sung the nonprofit’s praises.)
But back to meeting with your bank’s small business loan officer: Shelton suggests that you explain that you’re still working on your business plan, and that you’d like to know if there are any pertinent details the bank would like to see in the plan that you’ll eventually give them.
This way, while you work on your business plan, you’ll be tailoring it to your bank lending department’s tastes and requirements.
Now, if you develop your business plan, hand it over to the loan officer, are still turned down, Shelton recommends hitting up other banks.
Or you could try a local credit union, which are virtually indistinguishable from banks but have a reputation for being more community friendly, easier to deal with, and more willing to lend than a giant corporation.
“Ultimately,” Shelton says, “the bank wants you to demonstrate that your loan can be paid back, with interest, on time and without hassles.” That’s true of a credit union, too, of course.
If your bank or credit union won’t give you a loan, there are other ways to get money from a bank. But that would require overpowering a guard and getting past the alarm system, so, uh, no, I wouldn’t recommend that. But in all seriousness, try this next idea…
Apply for an SBA loan.
You might be able to get a small business loan through the U.S. Small Business Administration (SBA). You can get more information on what you need to do to apply for a loan here.
SBA small business loans range from the fairly small microloan of $5,000 to as much as $5 million, according to the SBA website. The average loan, however, is $371,000.
As with approaching a bank for a loan, you’ll want a business plan and a solid credit history (if your credit score is something of a dumpster fire, you aren’t likely to be handed a huge check).
And if this doesn’t work either…
You might try crowdfunding.
This crowfunding practice – of asking people, from family members to strangers, to give you money to get your business going, sometimes by offering them a reward, pre-ordered merchandise, or piece of the company – is definitely worth considering.
You’ve likely heard of Kickstarter, the best known of the crowdfunding bunch. But there are many, many crowdfunding sites for all different types of businesses and industries and entrepreneurs. “Nobody knows how many crowdfunding sites there are,” says Shelton, who hazards a guess that there may be 500 to 800 of them.
He suggests that before you jump into the first crowdfunding site you find, you check out CrowdsUnite, a comprehensive crowdfunding education site and directory.
You could apply for a loan from an online lender.
Please be careful here. Some lending services, like peer-to-peer lenders, have solid reputations. (Shelton is generally a fan of peer-to-peer lending sites.) Lending Club and Prosper Marketplace are two of the biggest names in peer-to-peer business loans, if you’re drawing a blank at where you might go.
But there are also plenty of online alternative lending services that are little more than payday loan stores online, and if you’re starting a business, the last thing you need is to have a high-interest-rate debt on your books.
Here are some other small business funding ideas.
I’m just going to toss out a number of ideas, quickly. Otherwise, we’ll be here all day. If you’ve already looked into everything I mentioned above, you could also:
Raid your retirement account. I wouldn’t. You’d better really believe in your business, and if you believe in it that much, you’d think someone would be willing to invest in your company. So why am I bringing this up as an option? Because it is an option. I didn’t say it was a good one.
Take out a home equity loan. Rather than my retyping that last paragraph, you can simply read what I said about raiding your retirement account. It’s an option, not a good one.
Enter a business plan competition. Some universities do that, and then you end up winning funding for your business. See, writing a business plan can help you out in a lot of ways (it’ll also help you determine exactly how much you need to borrow).
Apply for a residency in a business incubators. These are often hard to get into, but many communities have them. You generally get, if not funding for your business, a cheap place to set up your business and, often, access to things you’ll need to run your business, like free phone and internet service.
If none of those ideas are working for you, you could try working piecemeal. That is, as Shelton puts it, “You could work as far as you can on your business without the money you need, far enough to get some more traction and then go back to your bank and ask for a loan.”
In other words, if you can’t get a loan, don’t give up. You’ll likely get it. But it may take awhile. And that should be okay with you. It’s that patience, persistence, and passion you have for your business idea that will eventually inspire a lender or investor that you’re worth lending money to.