Getting approved for a small business loan is a challenge in and of itself. But on top of that, entrepreneurs don’t always get the amount that they want, let alone the amount needed to start without a considerable amount of risk.
If this is the case for you, here are some of the best ways to supplement your SBA loan with additional finances:
1. Find a venture capitalist
Venture capitalists provide capital in exchange for part ownership of the business, allowing entrepreneurs to fund the business without spending their own money. Finding a venture capitalist to support your business might be a good option for you, especially if you are a first-time business owner. Aside from gaining additional capital, a venture capitalist can also impart vital business knowledge and be a useful connection in the industry, helping your business grow and continue growing past the rocky start.
2. Look for an angel investor
Venture capitalists usually go for companies that can demonstrate a high growth potential or a competitive edge in the industry. Unfortunately, having demonstrable growth is not something that all budding businesses are capable of, especially for first-timers.
If this is the case for you, all hope is not lost. There are angel investors who invest in early-stage businesses and startups in exchange for an equity position in the company. While they provide funds for the business, they will also help steer the business to a better path using their own experience and expertise.
3. Reach out to family and friends
Family and friends can also be angel investors, but if they don’t want to assume a position in the company, you can repay the money that they lend you for the business. However, keep in mind that borrowing from friends and family puts your personal life in a risky position.
To prevent a fallout in your relationships because of money, treat their loans as actual personal loans that you have to pay on time. If you can’t pay them back on the agreed date, make sure to let them know in advance and provide an estimated timeline of when you can return the money.
4. Use your credit lines
Using credit cards to fund a business is an inherently risky thing to do, but it is one of the easiest ways to supplement capital if the business loan is not enough to cover all expenses. If you own multiple lines of credit, you can use them to finance recurring payments or make medium-sized purchases for your business, such as equipment, software, and subscriptions.
However, using personal credit for your business should be done with extreme care. If handled irresponsibly, both your business cash flow and personal credit history can suffer.
5. Try crowdfunding
Crowdfunding sites like Kickstarter or GoFundMe allow entrepreneurs to raise money from people who are interested in their product, which can be extremely useful, especially if you don’t have a business loan in the first place. Crowdfunding is usually done by posting the company’s story, details about the prototype, and the problems it aims to address. In exchange for donating money, founders usually send donors samples or first-in-line access to the product once it is released.
The success of crowdfunding largely depends on the product and how you present it to the public. If your product is unique and aims to solve a specific problem, you might want to consider this option to supplement your small business loan.
6. Look for another lender
If you haven’t finalized any loan yet, you might want to look for another lender that can offer you better terms. However, keep in mind that applying for a loan can hurt your credit score. Some lenders do a soft credit pull when providing you with an initial quote. But if you make a full application, lenders will do a hard credit pull, which can dock some points off of your credit score.
That said, look for the right lenders and do as few applications as you possibly can. Every full application can hurt your credit score, making it even more challenging to secure a business loan, so make sure the lender can help your business before applying.
Small business loans are often difficult to secure. There are a lot of things that you have to consider, and the preparation alone can be tedious. If you happen to secure a loan, good for you. But if it’s not enough to cover all of your business expenses, use these alternative strategies to fund your business costs.