Nontraditional Financing Sources

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Entrepreneurs can turn to a variety of sources to finance the establishment or expansion of their businesses. Common sources of business capital include personal savings, loans from friends and relatives, loans from financial institutions such as banks or credit unions, loans from commercial finance companies, assistance from venture capital firms or investment clubs, loans from

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the Small Business Administration and other government agencies, and personal or corporate credit cards. But for some businesspeople, these sources of financing are either unavailable, or available with restrictions or provisions that are either impossible for the company to meet or deemed excessive by the business owner. In such instances, the capital-hungry entrepreneur has the option of pursuing a number of nontraditional financing sources to secure the money that his or her company needs. Some of the more common nontraditional financing sources include selling assets, borrowing against the cash value of a life insurance policy, and taking out a second mortgage on a home or other property.

Selling Assets

Some entrepreneurs choose to sell some of their personal or business assets in order to finance the opening or continued existence of their enterprises. Generally, business owners who have already established the viability of their firms and are looking to expand their operations do not have to take this sometimes dramatic course of action, since their records will often allow them to secure capital from other sources, either private or public. Whether selling personal or business assets, the small business owner should take a rational approach. Some entrepreneurs, desperate to secure money, end up selling business assets that are important to basic business operations. In such instances, the entrepreneur may end up accelerating rather than halting the demise of his or her business. Only nonessential equipment and inventory should be sold. Similarly, care should be taken in the selling of personal assets. Items like boats, antiques, etc. can fetch a decent price. But before embarking on this course of action, the entrepreneur should objectively study whether the resulting income will be sufficient, or whether the enterprise's financial straits are an indication of fundamental flaws.

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