Unconventional funding avenues for small business

Acquiring capital is a challenge that virtually every small business faces at some point or another. Financing a startup is not always easy, but, traditionally, entrepreneurs have relied upon small business loans to get their new companies up and running. Today, however, securing such capital is not an easy task. Ask any small business owner how they would obtain capital for operations or growth - chances are they would reply through a bank loan, or debt. Unfortunately this traditional avenue of capital has been, and continues to be largely unavailable for small businesses. A glance at the numbers from a recent study shows that: 

·         78% of small businesses call it "difficult" to raise debt financing

·         56% of small businesses are denied bank loans; and

·         45% of small businesses were forced to transfer personal assets to their business

Obtaining financing for a small business even in a healthy economy can be challenging, since many business owners lack operating experience and solid credit history. Today's tight lending environment is making it even tougher for entrepreneurs to raise money to operate and grow their businesses.

Both entrepreneurs and funding providers realize that the lack of available credit is hampering their ability to make this happen. Solutions exist, but they often require some out-of-the-box thinking and aggressive efforts on everyone's part.

If a traditional loan is not secured, small business owners may also be able to access alternative sources of capital with some aggressive efforts and out-of-the-box thinking. Listed are a few to get started on:

Local Communities:

One of the most widely overlooked sources for small business capital is the local community. In recent years, there has been a unified push for consumers to support local small businesses and to 'buy local'. There's no reason why people shouldn't be able to easily 'invest local' as well. Statistics show that 7 in 10 small businesses that raise money from their community are successful.  

City & State Resources:

There are lots of government agencies and non-profit organizations that financially support small businesses. You can check with the respective city and state economic development agency to see if there are specific programs or grants associated with your particular industry cluster. 

Funding Matchmakers:

The landscape of small business capital is quickly expanding. This has spawned a new breed of companies focused entirely on helping you get matched with the best type of funding for your business. Companies like FundWell, Lendio and Multifunding are dedicated to advising you on all of the options on the spectrum.

Although bank lending to small businesses is on the wane, new and innovative alternatives have surfaced to the mainstream. They are readily available to those open to doing things a little differently.

Do's and Don'ts of refinancing

There is never a better time for refinancing than now. Mortgage rates are at historic lows.  This can save thousands of dollars in interest and help build up equity on one's home faster. However, refinancing can also be expensive and cost more than the savings. Here are some tips to help navigate the field of refinancing.

Cost calculations and credit history

DO the numbers. With a good credit history, you might easily get a mortgage refinance. However, what you see is not what you get.

Calculate the new interest rate you are considering, and plug in the closing costs. Request for a detailed list of all fees and expenses; look out for hidden expenses, padding of fees for services offered by third parties, and any prepayment fees your current lender might charge. These can be expensive (1 to 3 percent of the mortgage balance) and nullify any benefits gained from refinancing.

Talk to your current lender

DO talk to your current lender first. Some lenders -- who do not want to lose your business as well as your loan may be willing to modify your existing loan so that you will get a lower rate at no cost or at reduced settlement costs. Also determine if you will have to pay a prepayment penalty for paying off your current loan early.

Consider the same payment over a shorter mortgage

DO consider changing to a 15-year mortgage instead of just refinancing to get the monthly payment down. Depending on your situation, you may be able to do it with little or no increase in your monthly payment. But the debt will be cleared much sooner, so the overall interest payments will be much lower. And in case you sell your house in the interim, you'll have built up much more equity.

Move from Floating to Fixed Rates

DO inquire about "lock-ins" and "float downs". One of the huge benefits refinancing offers is upgrading from potentially risky floating interest rates to a safer fixed interest rate. Fixed interest rates allow for better budgeting as you will be sure of the monthly mortgage payments.

If you are in doubt as to the validity of a potential lender, contact your local Better Business Bureau, your State (or local) Banking Commissioner or even the AARP for further information.

Investment properties traditionally come at higher interest rates. The best rates available are for single-family homes that are mostly lived in. For condos, lenders worry that buying just part of a building is more risky than buying a single family home. There are too many other risk factors one cannot control, and they have higher default rates.

In conclusion, when refinancing one's current mortgage, it is effectively a brand new settlement. The only difference is that there is no buyer or seller present at closing, and there will be no real estate broker involved.The tax consequences of refinancing can be difficult to grasp. But instead of grappling with the hassle alone, contact your tax advisor who understands the tax ins and outs of refinancing and can help you through the process.