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Consider Other Sources of Funding

Even if you do secure a monetary loan from a friend or family member, or persuade someone to partner up with you on the venture, you may also be able to get help from an angel investor. Angel investors typically offer capital for business startups in exchange for convertible debt or equity in the business. Many angel investors now belong to networks where they share investment capital.

Microloans – which usually range from $5,000 to $20,000 – are also worth exploring.

“Minority business owners, in particular, can qualify [for microloans] if they don’t need a lot of money,” said Ty Crandall, CEO and founder of Credit Suite. “These are often good loans in terms of interest rates.” The U.S. Small Business Administration offers the SBA Microloan Program. Loans available under the program carry interest rates of 8% to 13% and have a maximum repayment term of six years.

While competition for them can be fierce, you can also look into government grants and grants from local agencies. Crowdfunding, where you obtain smaller amounts of money from multiple people through an online platform, is another option. Drew Page of business lending platform EquityNet said it is important to disclose your existing debts when you’re raising money. You shouldn’t try to cover them up.

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“Transparency builds trust, and if investors conduct their diligence and discover you tried to cover up your debt obligations in order to raise funding, they’ll almost certainly revoke [any offer],” Page said. Key takeaway: Angel investors, microloans, crowdfunding and grants are alternative funding sources worth exploring.

Make a plan for your borrowed funds. No matter how you intend to finance your business, it’s critical to make a plan for how you will use the money, especially if you are looking for a loan, Senturia said. This plan should be detailed, but flexible enough to adjust as your financial situation changes.

“Don’t borrow more than you need, and don’t borrow without a specific use of funds,” Senturia said. “Taking that money when you don’t know specifically how it will make a profit for you isn’t a prudent decision, and it may actually hurt your business more than it helps. Borrowing with a clear sense of purpose will give you the best chance to productively and successfully deploy your new capital.”

Knowing exactly how you’re going to use borrowed funds may even help you obtain a loan despite your debt. Josh Eberly, owner of 717 Home Buyers, said creating and sharing a five-year plan for how he was going to use borrowed funds was an invaluable strategy in procuring funds to start his business.

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