Creative Business Financing

Creative business financing gets the job done when all else fails. All business startups need creative business financing alternatives, because commercial lenders don’t like startups, considering them too risky. When you start your business, expectations of significant immediate income belong in the realm of fantasy. Running a business is hard work that requires dedication and drive. Financing your dream is sometimes an impossibility in conventional channels. If your credit is negatively impacted by late payment records or other dings, you may not qualify for a small business loan. Another reason is that your idea isn’t strong enough for a lender to take seriously, or your business plan is flawed. If so, you must seek alternative forms of financing.

Credit Card Financing

Upside

You invest in supplies you need and equipment at an average interest rate, say 9%. Or you use credit cards with low or zero interest rates you stockpiled before you made the transition. These cards can provide short-term solutions, and as a last resort, you can borrow against them for cash advances.

Downside

Even minimum payments add up and can become a burden if your cash flow is lacking. Another factor to consider is that one late payment on any card can trigger a huge interest rate increase of all your credit cards across the board, even those with zero interest. Why? Because credit card companies rely on credit reports issued by the three main players, Experian, TransUnion and Equifax. to track your payment history. In other words, they wait for you to make one mistake they can capitalize on. One late charge on one card can be picked up by all your creditors and the next thing you know your interest rate skyrockets. double or tripling your minimum payments in a little as 30 days.

Another downside to zero interest cards is that the offer has a finite date. Any balances carried over beyond that date are subject to higher interest rates. You may find that the cards jump from zero to 14% or higher depending upon the deal you got.

Credit Card Consolidation Loans

Upside

Readily available.

Downside

Long-term peace of mind these lenders promise is rarely realized if you do not heed the lesson of overextension. The lure of credit is strong, “free” money that need not be repaid. At least not right away.

While consolidation loans provide a short-term solution, frequently those who obtain them never heed the lesson about overextension and continue to spend, often again maxing out the credit cards that they had reduced to zero with the consolidation. And because these loans are based on collateral, like the equity in your home for example, you may end up losing your home if you default.

Financing With Family And Friends

Upside

The good thing of turning to family and friends for creative business financing is, your parents, grandparents, rich aunt, uncle or friends may be willing to invest in your company at little or no interest.

Downside

These are the loans you’ve got to pay back first. If you miss a payment, it causes stress. But if your business fails, the emotional trauma can be high and create painful relationship rifts never to be repaired between you and your friends. Or even worse, gossip circulated forever in family circles that you failed. Also, your more savvy relatives may have insisted on collateral for the loan they made. If you default, they may insist on collecting, and you may lose ownership of the item you offered for collateral. Your car for example.

Home Equity Loans

Upside

If your credit is good and the market remains strong, a home equity loan may be the ticket for you, providing access to funds based on what your home is worth.

Downside

These loans add risk. Should you experience a period of extended earning difficulties, the payments for these loans are added to your mortgage payment. Should you default, you could lose your home.

Savings and Retirement plans

Upside

You can tap into these funds to carry you through the lean times before income from your new venture starts rolling in.

Downside

If the income rolls in too slowly, it becomes all too easy to get caught up in the emotion of overspending on things you need without regard to frugality. Entrepreneurs are by nature risk takers. But this tendency has to be balanced by a frugal approach to spending, or the cash can be gone in short order. You’re left with a huge hole that has to be filled and sometimes never can be because the business doesn’t’ provide enough income or fails.

Don’t Create A New Identity

There is no upside to using a new identity as a means of creative business financing. Obtaining additional credit cards by falsifying a new identity is illegal and the biggest pitfall. Sure, it’s easy to rack up expenditures on a card you never expect to repay, but should you be caught by an agency, like the IRS, you could lose everything. It isn’t worth the risk.

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