Alternative sources of funding for your small business

As the economy continues to struggle to rebound, and unemployment rates remain at historical highs, many people have considered following their entrepreneurial dreams of "creating" their own job. The good news is that while hard times have kept demand for small businesses high, and a wide selection of options are on the market, most business buyers are facing one major challenge-accessing the capital required to start one. It's very rare that a prospective business owner has enough cash to buy a business outright, so traditionally they have relied on a variety of sources to finance the purchase. Unfortunately, the primary source of capital for existing small business buyers and owners (commercial and bank loans), has dried up significantly over the past few years. However, while that can be grim, for aspiring business buyers, or small business owners, fortunately there are other ways to secure financing for your business. If you are in the market, and face a lack of capital, you may want to consider the following alternative sources of funding for your small business-

• Peer-to-Peer Lending Networks-If you're unable to access bank capital for your small business, one alternative is to turn to peer-to-peer lending networks. These networks remove the traditional lending institutions, and instead allow lending transactions to take place directly between individuals. If you want to use this route, there are many online companies that are available, for this type of loan. On these sites, loan seekers request a specific amount (typically up to $25,000) at a specific interest rate, and lenders fund all or portions of the loan. Lenders are then paid back with interest over a set period of time. It is important to keep in mind that a borrower's success when using these networks, depends largely on their credit ratings.
• Friends and Family-Borrowing money from the people in your life is probably the longest-standing method of funding entrepreneurial endeavors. While many people are hesitant to borrow money from friends and family, for fear of straining personal relationships, there are ways to deal with this. If you make it a point to hold up your end of the deal under all circumstances, and borrow only from individuals who are in a position to lend, without risking their own financial health, it can serve as one of the most effective ways to fund a business. If you feel this is an ideal method for your individual situation, there are certain online sites that can help to manage the process of borrowing, from people you know, to ensure all parties involved are comfortable with the deal, and confident that all loans will be paid back on time. Financial experts advise that all details of the loan are put into writing, to make sure everyone has clear expectations.
• Retirement Funds-Some people might consider using money from a retirement nest-egg to risky. However, it can often be an effective way to invest in your entrepreneurial endeavors, and has had successful outcomes for more and more of today's business owners. It is important to understand that you can invest your existing IRA or 401(k) funds to the purchase of a business, without taking an early distribution and incurring penalties. In addition it is even possible to combine money from your retirement fund, with loans and other funding methods, for greater flexibility. Many entrepreneurs choose to invest in a business they control because they believe the growth opportunity is greater, and want to diversify a portion of their retirement holdings. If you find this is a viable option, you should consult with your tax professional to understand all of the ramifications for your specific situation.