Creative Alternative Financing Methods to Put Cash into Your Business

September 2017
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Whether you’re just starting your business or you’re looking to expand, you may need financing to get more cash on hand. Traditionally, if you needed funding for your business, you went to a bank and applied for a loan. But today there are other creative ways of financing your business that may meet your needs and get more cash into your coffers.

SBA Loans

The Small Business Administration (SBA) offers a variety of loan programs. The most common SBA loan is the 7(a) Loan Program. This program is ideal for businesses that want to open a new location, hire new employees, and otherwise expand an existing business. It can even be used to establish a brand new business.

SBA loans are issued by participating lenders, mostly banks, but they’re backed with an SBA guarantee. If you default on the loan, the SBA guarantees a portion of the amount up to $3.75 million. The average amount of an SBA loan in 2016 was about $375,000 and the maximum loan amount is $5 million.

RollOver Your Retirement

Did you know that you can take your retirement investments and use them to fund your business venture? A RollOver as Business Startup plan (ROBS) allows you to take the money in a self-funded IRA or previous employer’s 401k and invest it into your business without penalties or incurring distribution taxes. You can fund your new business with tax-free capital, without worrying about credit ratings or bank approval.

In order to use a ROBS plan to finance your business, you’ll need to incorporate. The corporation then sets up a qualified retirement plan and you roll over your existing 401k into the new retirement plan, tax free. That plan then buys shares in your corporation and becomes an owner in your business.

Peer-to-Peer Lending

The sharing economy has reshaped the way we get from place to place and where we stay with both ride-share and home-share services (think Lyft and AirBnB). So it should come as no surprise that there are similar services available to connect lenders with business owners in need of capital.

Peer-to-peer lending services cut out the need for a bank, allowing people to borrow and invest without involving a financial institution. Lenders invest in a peer-to-peer marketplace and then the loan amount is transferred into your bank account. You repay the P2P service and your lender, in turn, pays back the investors.

Business Credit Cards

A business credit card will allow you to keep your personal and business finances separate. A business credit card will not report on your personal credit profile (except in the case of default), which means it won’t affect your ability to buy a home or new car. Unlike a traditional loan, you only pay interest when you actually use the money on your business credit card. Business credit cards often offer great introductory offers, like 0% APR for the first 12 months, and other perks such as airlines miles or extra points earned.

Your personal finances and credit history may be considered when you apply for a business credit card, particularly if you’re a sole proprietor or your business is new, so you may not qualify for a business card if you don’t qualify for a personal one. If you do qualify, a business credit card is an excellent way to keep your business and personal finances separate and to reap the benefits of points and miles that you can earn just by keeping your business up and running.

From starting a brand new business to growing it, there will always be a time when more funding can help you achieve your goals. While a traditional business loan may make sense for some businesses, some of the time, there are plenty of alternative financing options that can help you out the rest of the time.

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