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3 Ways to Fund your Startup Business Idea

Companies / SME Aug 25, 2018 - 06:05 PM GMT

By: Dylan_Moran


If you are running a startup business that’s less than a few years old, then you would likely have trouble getting a business bank loan. Even so, there are lots of great ways to finance a startup business and begin your dream business. Here are three ways to fund your startup business idea.

1. Using your Home as Equity
If you own your home and have more than 15% equity - which is calculated using the equation (home value minus mortgage value) divided by home value – then you might be able to get a business loan based on the value of the home. Banks will generally allow you to borrow between 70% and 85% of the value of your home. You get two choices in this regard; a Home Equity Loan (HEL), or a Home Equity Line of Credit (HELOC).

A HEL is basically like a second mortgage, while an HELOC – such as one offered by UnsecuredFinanceAustralia – is like a business credit card where your home is used as collateral. This comes with the advantage of being cheap, with a much lower interest rate than other methods of funding. Don’t forget that your home is on the line though; there’s a real chance that you may lose your home if the business goes under. So be sure you have a great idea and have done all your due diligence about running a business first!

2. Using a Retirement Account (ROBS, BORSA)
It may be possible for you to get funding for your startup by using the money in your retirement account. Effectively, you would be purchasing stocks in your own company using the money from your 401K, and then making those stocks part of your 401K account. If you do this properly, you can take money out of your 401K without having to pay early withdrawal fines and disbursement taxes. If your business is a hit and succeeds, then you’ll get some of the money from the business in relation to your ownership percentage.

There are some disadvantages to this approach, with the biggest being that many retirement plans don’t allow this kind of transaction. You would need to have either a Business Owners’ Retirement Savings Account (BORSA) or a Rollover Business Startup Plan (ROBS). These plans can take a big financial investment of their own to set up and maintain. So be sure to consider your options.

3. A Peer-to-Peer Loan
There are some websites that allow you to borrow up to $35,000 of funding for your startup from strangers through peer-to-peer funding. Prosper and LendingClub are the two biggest such websites. While these sites were originally intended to provide people with 3-5 year loans to pay off credit card debt, they are branching out and beginning to offer small business loans. Just keep mind that you will need a solid credit rating (which will be destroyed if you fail to pay back the loan) and that you may have to pay back between 12-25% per year, depending on the terms of the loan.

While startup businesses are unlikely to claim a bank loan, there are still lots of other ways for them to get the funding they need. Just do a little research, weigh your different options, and choose the right mixture until you have the money you need to start your business.

By Dylan M.

© 2018 Copyright Dylan M. - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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