April 13, 2021

If you are looking for ways to expand your business, or are having cash flow issues, it is common for many folks to have a love/hate relationship with banks when it comes to securing a loan. Many people often feel like banks are most eager to lend to those businesses that least need to borrow.  Regardless of your past experiences or why you are seeking funding for your next project, below are some of the smartest ways to borrow money in the current market.

Line of credit

It is very common for investors to experience uneven cash flow from time to time. A line of credit allows you to get money quickly, with the understanding that you will pay the line of credit down once your deal has been closed or for a fixed amount of months depending on the terms of the agreement. Line of credit interest rates are variable and usually competitive and therefore, could be a positive short-term solution.

Review options with your bank

Obviously, banks are in the business of making money through loans. If you have a history with a particular bank and have a good payment history, they may be willing to get creative to come up with a solution for financing your next project.  Be aware, however, your bank will likely want to see a business plan. Many banks will not lend to startups because the risks are too great, so limiting the risks of your deal prior to presenting them with an option, could make the difference on whether or not they are willing to work with you. Here are just a couple ways to win your bank over to your side:

• Offer a personal guarantee. Banks are often cautious to lend money to a business they have not dealt with much or if the deal is riskier because if the deal falls through or you declare bankruptcy, the bank can lose big time. Offering to personally guaranteeing the loan may give you the bargaining power you need to secure funding.
• Secured loan. The most secured loans that appeal to a lender are deals with collateral involved. Securing the loan with the property you are trying to purchase or even another property you may own will give a bank or lender a lot more confidence when deciding to lend you the money you need or not.

Consider borrowing from family and friends

Instead of applying to the bank for a loan, ask extended family members to put up the money. These deal terms may include shared ownership of the business or a direct loan with often times more reasonable terms that a bank will offer. Regardless of who lends you funds or what the agreed terms are, you should always document the terms in writing. The most common need for documentation is a death or other instances when the loan is disrupted before it is repaid. Regardless the reason, it could be challenging to collect and resolve issues with family members down the road, so its always best to have proof in writing.

Government programs

The most obvious are the Paycheck Protection Program (PPP) loans the government has been making during the pandemic. This program included forgiveness provisions; loan similar to traditional grants. The government has also lent money through its “Economic Injury Disaster Loan program”. Additionally, some states and cities have also created lending programs to attract and retain small businesses.

Easiest isn’t always best:

Credit card debt

The rate of interest on cash advances is far higher than on purchases. The average rate on credit card purchases is 15 percent and higher, and the cash advance rate may be over 20 percent. Using credit card debt as a way to invest or borrow money for a loan project should be avoided at all cost.

Marketing emails

We’ve all gotten those marketing emails promising unreal deals only to read the fine print and discover they are a complete scam. You should always be highly suspicious of unsolicited emails offering you pre-approved guarantees. The golden rule for these types of offers remains, “If it sounds too good to be true, it probably is!”  Regardless of which route is best for you to fund your next project, use the above options as a road map for creative solutions next time you need to secure a loan.