January 9, 2015 Loans en_US Even the smallest home-based businesses require some startup capital. Not having the credit to get a loan shouldn't stop anyone from pursuing their dream. Review your non-bank options for raising money. https://quickbooks.intuit.com/cas/dam/IMAGE/A12bw3pqx/cb702dfd45f92f36f326e17a69d71612.jpg https://quickbooks.intuit.com/r/loans/non-bank-options-for-raising-money Non-Bank Options for Raising Money
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Non-Bank Options for Raising Money

By Suzanne Kearns January 9, 2015

If you’re in need of capital and aren’t sure you qualify for a bank loan, check out the following options.

Credit Cards

Some of the benefits of using credit cards for financing are outlined below.

  • You’ll get the money fast.
  • You can charge expenses as you go rather than borrowing the money all at once.
  • If you have a solid payment history, you can try to negotiate a better rate or an increased credit line.
  • You may be able to transfer the balance to zero- or low-interest credit cards regularly in order to get low-cost funding for extended blocks of time.

Along with the benefits, there are risks.

  • If the business fails, you’ll be responsible for the debt.
  • Depending on your credit score, your interest rates may be much higher than that of a bank loan.

You should always view credit cards as a temporary funding solution, and pay them off as soon as your business reaches its break-even point.

Borrow Against Your 401(k) Plan

If you have a 401(k) plan, you can withdraw the funds you need from it, but you’ll pay regular income taxes and, depending on your age, penalties for early withdrawal. A loan from your 401(k) plan, on the other hand, can have fewer tax implications. The IRS has very specific rules about how 401(k) loans work, some of which are listed below.

  • You can typically borrow 50 percent of your retirement account funds, or $50,000, whichever is less.
  • You must make quarterly payments, and the loan must be paid off within five years.
  • You’ll pay interest on the loan. The interest will go back into your 401(k) account.

Borrow From Friends and Family

If you’re going to involve your friends and family in your business venture, there are a few things to consider.

  • Decide whether you want loans, investors, or partners. A loan requires repayment. Investors hope for a return on their investment and may want some input into business operations. Partners will be fully active in the business and make decisions alongside you. It’s important that you’re clear about what you want before you approach someone for funding.
  • Be clear about the terms. If you’re offering to pay interest, make sure you agree on the rate. Be upfront about the risks, and the amount of time it will take you to repay the loan.
  • Outline your business plan just as you would to any lender. Talk about your idea and how you plan to set up and grow the business.
  • Get help arranging it. Seek legal guidance so all agreements are in writing.

Find Alternative Financing

Many startups have turned to alternative lenders to get the funding they need.

If you need a loan that is less than $35,000, a microloan might be right for you. Interest rates and repayment periods vary. With lenders like QuickBooks Capital, accounting data is pulled directly from your QuickBooks account and your business is matched with loans automatically.

Startup funding can be difficult to acquire. The possibilities above may give you some ideas about a way forward that will work for you and your business.

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Suzanne has been a full-time freelance writer for 20 years. She’s written for numerous business and financial publications such as Entrepreneur, Reason Magazine, Home Business Magazine, and Money Crashers. Read more