Launching a business at any age is an exciting undertaking. But starting one can also be capital intensive and can come at a high cost if you make the wrong funding choice. When you have funds tucked away in retirement accounts, it may be tempting to go after that money to launch your company. But keep in mind how many years you’ve worked, and how hard you’ve worked, to earn that money for the purpose of retirement. You may not have the time to start over and take advantage of the wonders of compound interest.
Instead of dipping into your retirement funds, consider alternative funding sources. Aside from applying for a traditional bank loan, there are many other ways to obtain financing to start a business.
Here are seven of them. If you have a financial adviser, discuss them together to determine what may be the best fit for your personal finances and for your company’s operating funds.
1. U.S. Small Business Administration (SBA) financing: The SBA has loan and grant opportunities ranging in purpose from starting a company to equipment purchases to helping a business recover from a disaster. Visit the SBA site to learn more about these opportunities. Currently, the most popular type of SBA loan has a maximum interest rate of 6.25% (loans over $50,000) to 8.75% (loans under $25,000).
2. Industry grants: You may be surprised to learn there are many industries with grant money that can help someone start a business within that field. Health care and clean energy industries are two of the larger ones offering grants.
3. A home equity line of credit: A home equity line of credit (HELOC) lets you borrow money as needed and only pay back the portion of the amount you borrowed. You must put up your home as collateral and often the loan limit is between 80% to 90% of the mortgage and line of credit value combined. There are tax advantages to using a HELOC, but it’s important to consider the risk of listing…