A startup needs money and turns to a bank. The bank of choice accepts the loan application and sanctions the funds. Everything goes smoothly until the interest payments get too much and the collateral kicks in. Then, the bank takes an asset to cover the loan and the small business is worse off than when it started.
If this isn’t a familiar situation, it could be in the future. A new company needs funds and a bank appears to be the best option. But, there are lots of alternatives which are worth exploring.
The following are some of the best methods.
Often, a startup only needs a small injection of cash to get off the ground. Because of the internet, the cost of running a company is lower than ever. Still, even small loans come with extortionate interest rates on the high street. Sadly, it’s how the industry gets rich.
A credit union doesn’t work in the same way. Yes, it charges interest, but it also looks after its members. To begin with, the rates are lower than an average bank loan, and the payment dates have extra flexibility. A union only lends small to medium amounts, but it should be enough to make a pipe dream a reality.
Isn’t a credit card worse than a bank loan? No, is the simple answer. A bank loan is pretty inflexible once the details are agreed. For example, the rate stays the same and the lender has all of the leverage. Cards are different because companies use promotions to lure in customers.
A business owner might be able to find a deal with 0% interest on purchases and balance transfers over a year. This gives you twelve months to pay off the balance. Plus, there are reward schemes like cash back where the company can make money.
First thing’s first — don’t go to a loan shark. No matter how bad a bank appears, a loan shark is worse. The good news is that not every private lender will send the boys around to recover a debt. In fact, many of them are entrepreneurs looking to make money and help their fellow moguls.
They are called peer-to-peer loans and make up a significant percentage of the industry according to p2plenders.co. And, bondmason.com points out they are a great way to divert risk and access higher returns. There are cons, but the pros tend to outweigh them in the majority of cases.
If you don’t want to bother with interest rates whatsoever, a family loan is the only option. Well, it is as long as the family member in question doesn’t family himself as a banker. As long as a family member or friend has the money, it is the best option.
Not only do you not have to worry about interest repayments, but you don’t have to stress over strict deadlines. Moneytalksnews.com has rules to follow to make sure everything doesn’t go south if you are worried about the impact on your relationship.
Ultimately, a bank isn’t the only option available to bosses and wannabe business owners.