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5 Alternatives to A Traditional Business Loan

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5 Alternatives to A Traditional Business Loan

A friend of mine recently needed $10,000 to expand the scope of her little coffee shop, one that was starting to receive more attention than she had ever hoped for. The $10,000 would go towards a central air conditioner unit, new furniture and the purchase of a POS system to help her manage her transactions better and quicker.

Now, the problem was that my friend had a spotty credit history. A failed prior business venture and repayment problems related to a loan for that doomed venture meant that seeking out a traditional business loan was simply out of the question.

When she asked me for advice, I introduced her to peer-to-peer lending and she quickly found a lender who believed in her and her business. Now, 3 months down the road since then, she has paid back almost 40% of that loan and is well on her way to financial freedom, thanks to the continued and heightened success of her now not-so-small coffee shop.

This friend has thanked me many times and has repeatedly said that she would have just let her business stagnate if not for my advice, after being denied a business loan from the bank that denied her. It then dawned on me that I should try to put the word out there, that a traditional business loan isn’t the only way to go about securing funds for a small business.

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Here are 5 alternatives to a traditional business loan, alternatives you can easily pursue.

1. Peer-to-Peer Lending

This is what worked for my friend. FundingCircle is a great site that connects potential borrowers with potential lenders. What is different about FundingCircle as a lender is that it allows individual investors and even institutional investors to fund your loan request. This means that someone who believes in your business can lend to you. In other words, your loan request isn’t looked at by loan officers but by people who actually take time to understand your business!

Unlike banks where your business is very objectively viewed, FundingCircle investors take a very subjective look at your application. For example, the investor who funded my friend’s loan request had a history of running his own coffee chop chain. He thus quickly saw the potential of my friend’s coffee shop, ran the numbers and worked out a $10,000 loan with great terms, for both parties!

Though FundingCircle connects you with a lender in a very unique way, the are traditional like banks in the sense that they will require you to put up collateral that can be in the form of cash, property, assets or even your business for that matter. They typically process loans in a day and will award funds to your business in less than 10 days, should your application be approved.

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2. 401k Loan

This will be your perfect option if you are a salaried employee contributing to your 401k, while also moonlighting with a business on the side.

Unlike a traditional loan or peer-to-peer loan, a 401k loan will not need a collateral at all, as your 401k savings become a collateral in itself. 401k loans are extremely affordable and come with other great benefits such as a no-prepayment penalty clause. They are also available very quickly, often in a matter of days.

The disadvantages are that taking out a 401k loan will mean that you can’t contribute to your 401k until the loan is repaid. Also, ending your employment or getting fired from your job will mean that your repayment period on the 401k loan gets knocked down to just 60 days, unless you can secure new employment.

A 401k loan is one of the most popular ways to fund a startup, as startup business owners are usually still earning a paycheck.

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3. Crowdfunding

Here’s a fantastic story about two first year college graduates who recently raised $10,000 to fund their business venture of selling cold coffee on a tricycle, to just one college! They did it and did it easily with crowdfunding. What is amazing is that they secured the funding even though they promised to repay with just a free cup of coffee, a T-shirt, a picnic, or a coffee roasting class! Read about the BrewBike crowdfunding story here!

You can do the same for your business as well. All you need is passion for your business and a good presentation! Indiegogo and Kickstarter are two of the most popular crowdfunding sites out there. Give them a shot today!

4. Business loans based on your cash flows.

If your business has a stable cash flow, there are lenders out there who can lend you as much as $500,000 as a loan, as long as they see that your cash flow can handle the repayment. Such lenders will only require you to put up a personal guarantee and not even a collateral, to secure such loans.

Not surprisingly, this is one of the most sought after alternative funding methods for businesses that already have a stable operating history. Since such loans are processed in a matter of a few days, they are also the most popular option to business owners seeking emergency business loans, like when loans have to be used to repair or replace machinery that keeps a business running on its feet.

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5. A Loan from friends and family, with a legal agreement.

Everyone has great friends and family members that they look up to. Chances are that such friends and family adore you as well. There is absolutely no harm in raising funds from these people that you know, as long as you believe in your business and have all the intentions to pay it back.

But, you must do your homework before you approach friends and family for a business loan. Read this great book about how to seek out a business loan from family and friends, after making it a legal binding. Adding a legal  aspect to it will tell your friends and family that you are sincere about this loan request and that you want to pay it back.

Making it a legally binding loan request will also remove the awkwardness that might arise when they are willing to give you a loan, but want it documented in some way. Most friends and family say no to loan requests because it is just “asked” for, often leading them to think they have no recourse if the borrower decides not to repay the loan.

If you are uncomfortable approaching friends and family for a loan, try the other 4 options mentioned in this article. But then, don’t entirely rule out this option. You never know as there might be a friend or relative who will be more than happy to help you out, often for nothing in return!

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Featured photo credit: Loan Now via loannow.com

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Last Updated on July 20, 2021

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

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Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

Have you ever considered your life now, and how it would be if you had more time to spend with your family and less worries about money?

Nowadays, financial stress is one of the most troublesome weights in life. If you’ve ever encountered financial stress, you know the difficulty of not having enough income to pay your obligations or bills.

Many people say that money is not the ultimate goal of life. While that’s true, money certainly plays a very significant role. The meaning of financial freedom changes with the different phases of our life, but ultimately, it is something that many people strive for.

In this article, we’ll explain how to capture that financial freedom you’ve been looking for. Read on to learn the secrets to financial freedom.

Break Free of Your Finances

Financial freedom is about having a constant flow of cash from your assets to cover all your regular needs.

When you are not worried about your income, or living paycheck to paycheck, you gain a great sense of freedom. It’s the freedom to be obtain and do what you truly need to make your way through everyday life.

Gaining financial freedom, though, is a process of growth, making small improvements and gaining emotional strength.

Though it seems hard to believe, it is really very simple to get financial freedom.

To do so, you simply need to make sure that your assets exceed your liabilities. In other words, you’ll need to find the sweet-spot where your residuals meet or surpass your expenses. This is something that you can achieve with the proper plan.

While not every person will accomplish financial freedom, the potential for anyone to do so is certainly there. Anyone can achieve this success, regardless of their income level.

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Outlined below are 9 secrets that will help you in your goals of achieving financial freedom.

1. Stop Unnecessary Spending

We often spend money inwardly, instead of objectively.

For example, you may spend when you’re anxious, depressed, restless, exhausted, from fear of missing out, or to please others. This is a very unhealthy way to handle your finances.

To stop this habitual spending, log down all your spending over the course of a month.

Just as some people keep a food diary, keep an expense diary. Remember not to just write down how much and what you spent the money on, also include the circumstances of why you spent the money. Was it an impulse buy at the checkout line or was it something you planned to purchase?

This increased self-awareness could enable you to avoid triggering situations in the future when you are considering an impulse buy.

2. Plan a Monthly Budget

This is a great opportunity to get serious.

Take a seat with your spouse or partner and make a monthly budget based on your income, not your expenses. You are never again going to spend more cash then you have on hand.

Overspending is the thing that led you to more financial obligations. Make sure you decide every month what is coming in and what will be going out and stick to that budget… no matter what.

3. Cut-up Credit Cards

Perhaps you are the type of person who always pays your credit card balance in full before the end of your billing cycle, and enjoys the reward points you gain. If this is the case, then you’re already way ahead of the game.

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If not, you may want to consider ridding your life of the burden that credit cards bring.

Many cards have strategies set up so that if you make a certain number of late payments, they will raise your interest rate much higher. This can really add up in the long run and you won’t be doing your financial situation any favors. If you’re prone to late payments or have a large balance due on your cards, cut them up!

Without proper self control on credit card spending and payments, you are basically throwing your money away. To ensure that you have better control over your spending, use only cash or debit for all future purchases (and don’t forget to pay at least your minimum payment on your cut-up cards each month!).

4. Increase Savings

There is no doubt that for a comfortable retirement you must accumulate satisfactory savings throughout your working life.

It’s good practice to save up to 15% of your income.

Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps.

Increase in longevity means you might be able to look forward to 25 to 30 years in retirement, or possibly even significantly more. Investing now in good retirement plans will ensure that you have a guaranteed a stable monthly income when the time comes to stop working. [1]

5. Invest Wisely

Consider investing in funds.

Specifically, you will gain higher returns if you invest in different types of mutual funds such as Debt funds, Equity funds and Hybrid funds with a proper balance, although it absolutely relies on your personal preferences and sense of risk taking.

To get the most of these benefits, make sure you are investing in a variety of assets. Another resource of investing in mutual funds is SIP (Systematic Investment Plan) where you invest some money every month in funds. SIP works by averaging the per unit price of the stock.

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Mutual fund investors are aware of the benefits of an SIP (Systematic Investment Plan). For one, it is the most secure way to invest in equity mutual plans so that wealth is created over a long period of time. This plan also helps you to gain a better sense of financial discipline, which will come in handy in all your financial endeavors.

6. Invest in Gold

There isn’t really a better way to invest in gold than to have the physical gold itself in your possession.

You can purchase gold coins and bars from mints as well as from coin dealers and other private sellers.

Another way to invest in gold is through ETFs (Exchange Traded Funds).

These are is similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than the that of physical gold.

With its consistently-increasing demand, investment in gold can be very wise long-term investment to make.

7. Stash Emergency Funds

Whether it’s a cash gift or a work bonus, always try to save any extra money that comes your way rather than making unneeded purchases.

If you get paid every other week, you’ll get an “extra” paycheck (three rather than the usual two) twice a year. Either save those paychecks towards your emergency funds or utilize the money to pay down other obligations, such as loans, credit cards or other debts.

Make it hard to get your cash.

Put your savings in an alternate bank, maybe an online bank that forces you to delay for several business days before transferred money hits your regular bank account.

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8. Find Fabulous Mentors

Find a mentor, such as a friend or family member, who has exceptional control over their finances and pay attention to everything they do.

If you do not have any friends or family that are enjoying financial freedom, then find a mentor online! There are numerous blogs and guru websites featuring the advice of many people who have reached financial freedom, and they exist primarily to let you in on how to achieve it for yourself.

There are also plentiful forums available that share tips and tricks on how to best achieve financial freedom. Read as much as you can and start changing your habits for the better.

9. Be Extra Patient

Patience is the key of financial success.

Being patient can be quite tough, especially when you’re struggling with your finances, but having faith is worth it. You’ll continuously be on the right track if you are taking the proper steps above.

So don’t be discouraged, even if you are only saving a few dollars a month; it all adds up. Within just a few years you’ll look back proudly at your accomplishments and be glad that you had the patience to get there.

Financial Freedom for All

Anyone can achieve financial freedom, regardless of their financial circumstance.

Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.

Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!

Featured photo credit: rawpixel via unsplash.com

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Reference

[1] Hartford Gold Group: IRA Retirement Accounts

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