How to Fund Your Family Owned Business

When you're a family-owned business and looking to stay that way, your funding options are somewhat limited. But there are small business funding sources available for entrepreneurs. 

Angel investors and venture capitalists typically want to put their money in companies that will eventually be sold or go public, so if you're planning to hold on to the business for generations to come, you need to look elsewhere.

Ordinarily, a bank loan is a good option, but the economic downturn left many small businesses with damaged credit ratings or severed bank relationships due to bank closures. In better times, a strong relationship with your banker will help you land the loan or credit line you need.

What can you do if your family-owned business needs money? Try these alternative small business funding options.

1. Ask your franchisor.  If your family owns a franchise business, check with your franchisor to see if it has any financing deals. Franchisors may offer help with equipment financing, store remodels, and new store openings.
2. Ask your vendors.  If you're paying cash for merchandise, see if you can negotiate terms for 30 or 60 days instead. This keeps your company's money in your pocket longer and gives you time to sell your goods and pay the vendor with customers' money instead of your own.
3. Get a UBLOC.  That stands for an unsecured business line of credit. Many lenders offer these loans up to about $100,000. Rates will be higher than with a Small Business Administration-backed loan, but approval usually involves less red tape and can be done in a couple of days.
4. Try microlenders.  Microcredit is a less well known small business funding source that first became popular as a tool to help Third World bootstrappers, but it's gone mainstream since then. There are many microlenders, including Accion and Kiva, that are offering loans of $35,000 or less to U.S. businesses. If you qualify, interest rates are usually fairly reasonable.
5. Try a peer loan.  Peer lending sites such as Prosper.com or Lending Club allow you to borrow up to $25,000 -- if you can convince individual investors registered at the site to put up the money. Interested parties can put in small amounts -- usually $50 or $100 apiece -- until the full loan amount is covered. Interest rates tend to be moderate to high, depending on your credit rating and the strength of your pitch.
6. Liquidate assets.  If you have unused items, from surplus business equipment to a boat that's sitting unused in your backyard, you can sell these assets to generate quick cash.
7. Sell your receivables.  If you need money to pay business bills right away and have customers that pay on terms, you can get cash by selling your receivables. A specialty lender in a field known as factoring will buy your receivables at a discount and pay you now. You give up some of the money you're owed but can avoid cash flow problems that tend to crop up while you wait for payments.
8. Get a purchase-order loan.  If you have a big order from a major customer such as a government agency or a national retail chain, you can get a loan for money needed to make and ship the goods your customer has ordered. Fees are substantial, but PO loans can help your business land big new accounts that it wouldn't otherwise have the cash flow to fulfill.
9. Turn to family and friends.  They're listed last because most financial advisors strongly caution against borrowing from relatives. If you run into trouble and can't repay as planned, it makes for some tense family reunions.

Finding small business funding resources may require a little bit of work, but there are definitely options out there if you do your homework.


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