4 Business Loan Alternatives You’ve Never Heard Of

 
12/26/2018

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Getting funding for your business is essential if you want it to succeed. But to get the get the best financing option, you need to know all of your options.

While you probably know about SBA loans, commercial bank loans, online loans, lines of credit, and credit cards, there are specific financing options within and beyond those categories that you might not yet know about.

To give you a better idea of what’s out there, here are some financing options that don’t get enough love.

1. Crowdfunding

Borrowing money or taking on investors can help you build your business, but neither option is ideal. You’ll either need to pay back a debt with interest or give up some of the control in your company to get the capital you need.

With crowdfunding, though, you go straight to your customer base. In exchange for small investments, you typically give them first dibs on your product or service once it launches. Not only is it an excellent way to get cash fast, but your only obligation to your funders is to give them what you were planning on selling to them anyway.

To give you an idea of the potential opportunity, here are some of the most successful crowdfunding campaigns on National Bureau of Economic Research, 86% of 401(k) loan borrowers with an outstanding loan when they leave the company default on their payments.

Another option to consider is a cash-value life insurance policy. If you’ve had the policy for a while and built up enough cash value, you can borrow from it tax-free without needing to surrender the policy as a whole.

While you’re not obligated to pay back the loan, the principal amount plus accrued interest could end up exceeding the cash value and terminating your policy. Also, if you die before you pay it back, the remaining loan balance is deducted from the policy’s death benefit.

Both your 401(k) and cash-value insurance policy can be a great way to get capital for your business. But it’s important to know both the benefits and drawbacks before you go through with it.

The bottom line

There’s no single best way to get funding for your business. Because every business and its owner are different, one may be better for you than for your friends or family members who have also started businesses.

As such, it’s crucial that you take the time to research all of your options, including ones that you might not be familiar with. If anything, the time you spend can help you eliminate certain financing options from the running in favor of more traditional business loans and credit cards.

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