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Securing funding for a small business is a crucial step towards success, and the Small Business Administration (SBA) is a popular choice for many entrepreneurs. However, it may not be the right fit for everyone. In this blog post, we'll explore alternatives suggested by Beau, a financial expert, for those who may not qualify for or prefer not to go through the SBA loan process.
Unsecured Term Loans for Smaller Transactions
If your business falls into the category of a smaller size franchise, typically $300,000 or less, unsecured term loans could be a viable option. Beau recommends companies that conduct a soft inquiry on your credit. They assess factors like your high credit limit, credit scores, and the number of inquiries to pre-qualify you. This process can result in obtaining a $50,000 line of credit or working capital. These loans are based on your personal income and credit score, providing an alternative for those who might not qualify for SBA loans.
No Collateralization
One significant advantage of unsecured term loans over SBA loans is the absence of collateralization. While SBA loans involve filing a UCC (Uniform Commercial Code) against the business, these alternative loans do not, offering flexibility in structuring your financial arrangements.
Retirement Account Funds and HELOCs
Rob's Rollover
Another alternative discussed by Beau is tapping into an old retirement account, which could qualify for a Rob's rollover. This option allows entrepreneurs to leverage their retirement funds for business purposes.
Home Equity Line of Credit (HELOC)
Beau suggests two additional options involving real estate. The first is a HELOC on your house, allowing you to extract equity. This could be a practical solution for those with substantial equity in their homes looking to invest in their business.
Equipment Financing and Business Credit Cards
For a more diverse approach, Beau recommends considering a combination of equipment financing and business credit cards. This mix provides flexibility in meeting the financial needs of your business, especially if you're acquiring a franchise system requiring specific equipment.
Focus on Credit Score and DTI
It's essential to note that alternative lenders often rely on your credit score and Debt-to-Income (DTI) ratio. These loans typically require proof of revenue, so having a steady income, such as W-2 income from a day job, can enhance your eligibility.
Conclusion
While the SBA is a popular choice, it might not be the perfect fit for every entrepreneur. Exploring alternative funding options, as suggested by Beau, could be the key to securing the financial support your small business needs. Consider your credit score, DTI, and revenue situation to determine the most suitable path for your unique circumstances. If you're hesitant about the SBA, these alternatives might just be the solution you're looking for.
Thanks for the question and happy exploring!