It is often said that when it comes to business, women are les likely to take financial risks than their male counterparts. Women are perceived to generally not want to take out bank loans to start or grow their business, and even when they do it is a much smaller amount than men.
But, it seems that perhaps women are not as over-cautious with lending as believed, because a report has come out showing that banks are discriminating against women.
If you are finding it difficult to get a bank loan for your business, it can seem like there is no hope at all. But there is – we will look at some alternatives ways to fund your business idea below, but remember that all methods have pros and cons and some (or most) may not work for your specific situation. No matter what financing method you choose make sure you take time to really investigate the ups and downs before you sign on the dotted line.
1. Crowdfunding
Every type of funding has some personal impact n your finances except crowdfunding. This is basically a way in which other people from all walks of life donate money to you to make your business idea a reality.
You don’t have to pay the money back, and those who donate don’t get a stake in your business either (unless you reward them with that).
This is a great option for mums who have a business idea that they want to get off the ground, because it takes the stress of having financial overheads right away.
We’ve recently partnered with Crowdfunder and are now offering a crowd funding platform right here on Motherswhowork.co.uk.
2. Savings
The first source you should consider tapping is your own savings. Financing your business yourself means that you’re not responsible to anyone but yourself. If it doesn’t work out, you don’t have to explain or pay anyone back any money, it’s just your pride that may take a hit. If things do go wrong and your business doesn’t take off in the way you planned, it will be your money that goes down the drain, but if you’re not willing to risk your own capital you certainly shouldn’t be willing to risk anyone else’s.
3. Friends and family
After tapping into your own personal savings, people often turn to their friends and family to meet any shortfall. This can work out well for some, but it can cause problems if you choose the wrong people, and if you struggle to either get the business off the ground, or find yourself unable to pay the money back.
Nothing causes tension in a family like lending money that is never paid back. And notice I say “lending money” rather than investing money. Venture capitalists invest money. Your relatives may see the arrangement as lending you money so if this isn’t the case, make sure you write an agreement with the terms their investment written in plain and simple terms for you all to refer back to if things start getting uncomfortable.
Remember, when a loved one invests in your business they are emotionally investing in you so try to respect this.
4. Credit cards
If you decide to finance your business on plastic keep in mind that you will be paying extremely high interest rates on the money you’ve borrowed and unless your business is a resounding success, you will be paying for that money for many years to come.
A good option would be to use a card that has an interest free option for a year or so, and make a commitment to pay off what you have used before the interest starts to pile on.
5. Re-mortgage your home
Bank loans are next to impossible to get if you don’t have collateral and a track record of business success, which is why many entrepreneurs use the equity in their homes to finance their business after being turned down for a bank loan. While this makes more sense than building a business on a deck of credit cards, the financial risks are no less abundant.
You must pay this money back whether your business succeeds or not, but it is a good source of low interest money to get you started and the interest may be tax deductible (check with your accountant to make sure).
The obvious downsides to this are increased mortgage payments, and potentially putting your home at risk if you overcommit yourself financially.
6. Angel investors
An angel investor is typically a wealthy individual who invests in businesses for a share of the ownership. Angel investors are usually the first formal investors in a business and provide the seed money to get the business up and running.
Some angel investors will give you the money and leave you alone to run your business, while others consider their investment a license to “help you” manage and make decisions in your business. If you do accept angel money make sure the terms are clearly defined on both sides to avoid problems and misunderstandings further down the line. Angel money always comes with strings. Make sure you know whether those strings come in the form of a bow or a noose around your neck before you sign anything.
7. Venture capitalists
Venture capitalists are to angel investors as pit bulls are to poodles. That’s not to say all venture capitalists are big, bad dogs, but they do have powerful jaws that can chew up your business and spit it out if things don’t go their way.
Venture capitalist money doesn’t come with strings – it comes with chains and locks and lots of legal documents.
If your business gets to the level that venture capitalist money becomes a viable option, don’t jump at the first bone a venture capitalist dangles before your eyes. If one venture capitalist likes your idea, others will, too. Present to multiple VC and carefully consider each offer before you accept the check.
Just remember, no matter how you finance your business, use the money wisely. Have a very clear plan of how the money will be used and how it will be paid back.
And remember this, the more you can shoestring the business, the more of the business you will own in the end.
