by Georgina Crawford

Created on: April 27, 2010

Many people dream of starting their own small business, but are unable to work their way around financing it.  The traditional method would be to go to a bank and ask for a commercial loan.  However, commercial loans have to be repaid at a higher rate than the bank’s standard base rate, usually one or two percent over base.  This puts a lot of pressure on the business, particularly in the first few years when there may be no profit to speak of.  There are a few ways around this, but they may take time and patience.

The easiest way to finance a small business with no loan is to use your own savings, which is great if you have them, but tough if you don’t.  Additionally, using all your savings could leave you open to financial ruin if there is a domestic disaster, or if the business is a flop.

Join forces with other people wanting to start their own business, and invite them to invest and become partners.  This can work out great, but can lead to all manner of fights and arguments, so it’s important to have proper contracts drawn up in the beginning, so that each person knows exactly what’s expected, how much return they will receive, when, and how much time off they can expect.  A proper contract prevents partners from suddenly deciding they will take a long holiday in Australia, for example and leaving you in the lurch.  The downside of a partnership is that you may not be the senior partner, and any profits earned must be shared as agreed in the contract.

Some existing companies function as venture capitalists (think Dragon’s Den on the TV), they invest a portion of their own profits in new companies if they think the business idea is viable.  However, they will expect a good share of your business profits, possibly even a majority share if they wish to really protect their investments.  They are also highly unlikely to want to invest in very small businesses such as coffee shops, or gardening services.  You would need to contact a few companies with a proposal and have an extremely good presentation ready, plus thorough knowledge of your finances and business plan.

Then, there is the long route, simply taking on extra work to fund a nest egg to be used for your planned business.  This is a long and tiresome road, and you have to be very strict about putting money away for this purpose.  It’s important to remain entirely focussed on what you want to achieve, to remain positive and not to become downhearted when things don’t go your way.

If simply being your own boss is the important thing, perhaps you should consider starting up a business that you can run from home, such as a cleaning service, gardening service, decorating, DIY, sitting service, home care, laundry service – the list is endless.  You are likely to earn a decent living wage, but could really start to earn money if you consider taking staff on and building your customer base by careful marketing.

In short, it is possible to start a small business with no loan, but it is not necessarily easy.

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