Finding it difficult to finance your big idea? Don’t let the lack of capital choke your aspirations. Here are 5 practical ways to help you bridge the gap from an idea to a steady stream of income.
If you need to be quick with your decision on a lucrative business acquisition and have more than $50k in your retirement account, then you can consider buying the business with a rollover. Using your IRA reserve or tapping into your 401(K) fund for a business investment will help you avoid income tax and an early withdrawal penalty. So stay away from debt and heavy interest rates with an easy to setup ROBS (Rollover for Business Startups).
Before you make the big decision, ensure that the investment is worth risking your retirement plans as you would need to pay a setup fee along with ongoing charges.
Many business owners offer a loan to the new buyer to help them purchase the business. But the loan covers only a part of the purchase so you need to complement it using other sources of capital. Seller financing surely eases a big burden if you can make the down payment. This option works great for those who don’t have enough cash to cover the complete purchase. Seller financing generally covers 30-60% of your purchase price with interest rates varying between 6-10%.
If you have a good credit score and the seller has a consistent stake in success, seller financing is a great option. The only thing that you should be taking into account is that you would have to combine seller financing with cash or loan.
Asking your friends and family for financial support is a convenient and inexpensive way to raise capital for a low-cost project. If you can convince your friends and family that your business will generate a steady stream of profits, you can get them to invest and ease your financial burden. Whatever you do, make sure that you treat the capital no different from a bank loan and repay it at the earliest.
A Word of Caution – Loans from near and dear ones can create a lot of stress and tension if your business fails putting the people you love at risk. A significant loss may also damage close relationships beyond repair.
Homeowners can use a home equity line of credit to make the down payment. A home equity loan has a low rate of interest as compared to any other way of financing your business.
Downsides of a Home Equity Loan – You are likely to lose your home if things go astray. A line of credit also reduces the equity in your property.
If you’ve been in business for 2+ years and have a healthy credit score, you might be able to qualify for an SBA loan. Pros of SBA loans – known as the gold standard for small business owners – include low rates and long terms (10 years). In the past, SBA loans were known for a tedious application process and time-consuming paperwork. However, SmartBiz Loans has streamlined the application and offers excellent customer service to assist throughout the entire loan process.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, Ariz. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com or visit www.sdretirementplans.com.