I’ve recently been looking into getting some investment in my company. I don’t need a massive amount of money, just a bit of financing to accelerate certain marketing activities. However, as the millionaire and poet Felix Dennis once wrote, making profit is all about “equity, equity, equity”. He was loathed to ever give away any percentage of his company and so am I. This got me thinking though, where can I find money that won’t put me in big financial risk and won’t force me to give over equity. Here are four of the best places I came up with, but I would love to hear examples of others if anyone knows any?
I once read that you should never lend a friend money if you are expecting it back. That is to say the amount you lend them should never be more than you would give them anyway. Whilst it’s true that lending friends money can open up a massive can of worms, I don’t strictly agree with this sentiment. It of course depends on the amount of money in question and how close friends you are, but I certainly think it is acceptable to give and receive loans from friends. I always pay friends back a little more than I borrowed as a way of saying thank you and ensuring they are not at a loss (interest wise) for lending me the money.
Unlike my friends, I hate asking my family for money. I don’t know whether it’s because I want to appear self sufficient to them or I’m afraid of being turned down, but whatever it is my family is usually last on the list of people to ask. This is of course foolish as pride should not stand in the way of progress and actually family is a very good place to get finance from. Not only are they likely to be more understanding should you delay in paying them back, but it’s also often very rewarding for the family member/s to feel like they are helping you and your business out. On the rare occasions I have received money from a family member, it has given us more to talk about when we meet and actually brought us closer.
Now these you have to be very careful with. Getting credit cards and loans to finance business expenses can mark the beginning of a long road to debt and despair. Having said this, many people rule these options out far too soon and they can be very effective if managed correctly. The first thing to think about is can you manage the repayments? If you are speculating your investment and relying on this to enable repayments, it’s best to look else ware. If you have steady money coming in however that can cover the repayments, this could be a great option. The second thing to consider is your credit rating. If you have a poor credit rating then you might only be able to get credit cards and loans that have high interest rates and this is where the danger lies. The larger your repayments and the higher the interest rates, the bigger the risk to you and your company. However, if you have a healthy credit rating, you should be able to qualify for one of the many interest free credit cards or low interest loans that are available. Some credit card companies are offing 18 months interest free right now, and so this is a great place to find money for your company with very low risk indeed. Just make sure you always pay at least the minimum repayments. The last thing is to keep good track of them. Set up a spreadsheet to track all the loans, repayment dates, minimum repayments and rates. Make sure to double check any formulas for errors, and spreadsheet errors have proven costly to businesses in the past!
Not many people consider their overdraft as a viable source of money, but I can assure you it is. I first started using my overdraft at university when my bank kindly gave me quite a large interest free facility. This is not uncommon and can be used as a great source of extra money with little risk. I’m not saying be reckless and rely on your overdraft all the time, but used at the right time it can make perfect financial sense. Now that I am no longer a student I don’t have an interest free overdraft, but have found that the interest I now pay is much lower than most credit cards and loans anyway, making it a great source of money still.
Just a word of warning with this one though – You don’t want to hurt your credit rating by using your overdraft too much . Most banks are happy for you to use it, but it’s best to check with them first about penalties and the impact on your rating. Be careful with your overdraft limit as well. Whilst overdraft interest rates are usually low, banks often slap you with a big charge if you exceed it.