Guidant Financial Group Blog

In a tight lending market, financing a small business or franchise can seem impossible. Entrepreneurs are finding that it often requires multiple sources of capital to get a project running. The search can be a time-consuming and costly effort, and sometimes a particular kind of financing just isn't right for a project. Here is a short list of sources of capital that entrepreneurs should consider:

Self financing through one's retirement assets: This is first on our list for obvious reasons (it's our business, after all), but it's also the only option on this list that does not result in debt. Too often, entrepreneurs and franchisees believe that only their cash assets and home equity can be tapped for a business, but one's own retirement funds can be used through 401(k) small business financing. It's already the account holder's money, so there is no debt and no outside investor. One only needs the right account to access these funds.

Borrowing from banks: Borrowing from a bank is still the most well-known financing option, but franchisees and business owners know that many banks are hesitant to make any loans to new projects in the current economy and that over time these loans have a huge cost. Despite this, banks are convenient for mid-sized to large loans.

Borrowing from private lenders: Private lending or peer-to-peer lending (P2P lending) is an option for those who need smaller loans or just a little more than is available through other means of financing. These loans usually cap at about $25,000 on the high end, and they can come with high interest rates, though these rates are occasionally better than what the bank might offer. As always, it depends on the project and the lender. NuWire Investor published a summary of some of the P2P lending platforms out there. You may want to check it out.

Getting SBA loans: SBA loans are guaranteed in part by the Small Business Administration, which improves the odds of getting approval. However, they require much more paperwork than other loans and the turn-around time can be three months or longer. Furthermore, new business are less likely to be approved than established ones. For larger projects, the time investment to apply may be worthwhile. One can also find short-term SBA microloans for amounts not exceeding $35,000.

Finding investors: Whether friends and family, partners, accredited angel investors, venture capitalists or even potential clients and customers, this can be the cheapest option in the short-term, but matters are usually less straightforward. Personal relationships, ownership and management issues and end agreements need to be carefully considered. Truly independent entrepreneurs may find some of these complications to be more trouble than they are worth, and loans and self-financing remain a better option.

Business owners can also lower costs by leasing equipment rather than buying an office full at the outset. There are many financing options available to entrepreneurs and franchisees and utilizing a combination of them can make all the difference in getting a project to take flight.