Q. How can I finance a small business project without collateral? Asked on High Table by Shehzad Aman
A. Here are a few ways to finance without collateral.
1. Your savings. You should be as demanding on yourself as a banker would be to demonstrate the viability of your proposal.
2. Your family or friends. They may loan to you without collateral because they know and trust you. Your obligation to repay is even stronger than it is with a bank.
3. Crowd funding. It’s the latest rage. I have read a lot about it, but I’m not sure how successful people have been raising capital this way. Who can get it, for what amounts and purposes? What promises do they have to make?
4. Your own creditworthiness. If you have a good credit score and good relationship with your bank, you should be able to get a non-recourse loan for several thousand dollars.
5. Charging it on your credit cards–the all-time worst way to fund a business, yet one that is used all the time.
To borrow money without collateral, you need strong and trusting relationships with people who have money.
Some may suggest venture capital. But VCs aren’t interested in “small.”
There may be business development grant or loan from a foundation or government agency, but this is not something to count on. None of my clients have ever gotten enough capital this way to start a business.
Perhaps you are being too restrictive by saying “with no collateral.” Ask yourself what kind of collateral you have. For example, if you purchase equipment, the equipment itself serves as collateral.
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Shehzad, I answered this question as if you were in the U.S. But it looks like you are in India. I know nothing about the small business banking sector there. I suspect that personal relationships are even more important. But there may also be business development loans from some agency that wouldn’t be available here.