Ten Sources Of Capital For A New Business That Require Minimal Or No Personal Credit

Ten Sources Of Capital For A New Business That Require Minimal Or No Personal Credit

The following is a list and explanation of some of the sources of capital for a new business that require minimal or no personal credit, starting with the most common and easiest to acquire and building to the most elusive. In addition, this list is in order by the amount of capital you need. Generally the earlier sources are those that are appropriate for smaller credit lines. The later sources on the list are the ones suitable for credit lines over $1,000,000.

1. Bank CD. Do you have a CD in the bank that isn't matured yet? Instead of taking the consequence for early cash out, think about borrowing the money back, securing it with the CD. These are very easy loans to get, because they are secured dollar for dollar by the CD. You can borrow the money at favorable interest rates, made even more favorable by the small amount of interest you are paid on the CD.

2. Stocks Without Selling. Do you have stocks that you'd rather not sell? Your brokerage house will let you margin the account, or borrow cash against the value of your stocks. Stocks can be margined at 50% their market value.

3. Retirement Accounts. The next step is typically to borrow money from yourself through margining stock accounts or borrowing against your retirement accounts. This is also relatively simple money to tap into, and some of the interest that you pay goes into your retirement account.

4. Friends and family. Many people stay away from this source of capital because of the potential relationship troubles if their business fails. Your decision to borrow from friends and family is a personal one, but it is often the easiest way to acquire investment capital. The disadvantage of using friends and family is that when they loan to your business, your business becomes their business. Very often these close associations will want to give you helpfuland not so helpfuladvice on how your business can be more profitable.

5. Supplier credit. One of the earliest extensions of credit that your business will experience is the terms offered by your suppliers. These range from the 30 day credit policies of utility companies, where you use the service before you pay for it, to interest free loans for a year on large receipt items. Establishing more and more of this sort of credit merely involves making appropriate payments as agreed and proving you can use credit reliably.

6. Life insurance policies. After the necessary credit is obtained, most investors look back on their assets to get an additional cash infusion for their business. The cash value of their life insurance policy is often the next target. A standard feature on whole life insurance is the ability to make use of the cash value of the policy through borrowing. You may borrow up to 95 percent of the cash value of the policy for an indefinite period of time. Loans against life insurance policies normally have very favorable interest rates.

7. Venture capital (VC). Venture Capitalists are privately owned companies that invest in businesses. They are willing to take high risks, but you will pay the price in interest and equity. Venture capitalists are inclined to want to receive the majority equity interest in a company, and will often take control of the board of directors and officer's positions as well. Their ultimate goal is usually to make the company very profitable, and then sell it. You will likely be replaced as CEO or president of the company, your product will be modified, and your share of the sale of the company will likely be under 10%. Venture capitalists generally won't consider your funding needs unless they are over $1 Million. Use VC funds when you have a hot idea you want to bring to market and want to do so fast and move on to another project.

8. Angels. Angels are similar to venture capitalists, but they are more philanthropic in nature. Angels will lend money to a business for low or no interest, or a small share in the equity or profits. Angel funds are more readily available for minority applicants or specific social programs.

9. Private placements. You can make an offering to a small number of investors, or a large number of sophisticated ones, for an equity position in your company.

10. Initial Public Offerings. If you need to raise a very large amount of capital for a company, say over $2 million, a public stock offering is likely the only way to go.

There are so many ways to attain debt with out the use of personal credit I have only mentioned a few here. So there should be no excuse for escaping the personal credit debt trap.

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