Wyoming Business Tips for April 5

A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.

By Lisa daCosta, Teton County SBDC business adviser

“I need only a few thousand dollars to start my business. Should I put it on my credit card, or do I have other funding options?” Rachel, Jackson

If you have taken the time to write a business plan and have created a budget for the first 12 months, this should confirm your belief that you need only a few thousand dollars. This should give you a sense of how long it will take to make enough money to pay off any loan.

Based on this information, you may have more options than just your credit card.

The first money you should find is free money -- look around your house and figure out what you can easily sell, through a yard sale, on craigslist.com or through classified ads. Tim Luke, an appraiser and auctioneer who also stars in HGTV’s “Cash in the Attic,” was quoted in a consumerreports.org article saying, “I’m convinced that the average household has $1,000 to $2,000 of potential cash in stuff they don’t use.”

The next source of funding should be whatever might carry an interest rate lower than your credit cards. If you own your car or truck outright, or owe very little on it relative to its value, you have equity in your car. You could take out an auto loan from a traditional bank or auto lender. The interest rate should be far less than your credit cards if your credit is good.

As long as you are confident that you can make the payments on the loan, whether or not your business is a success, this may be an option. For more in-depth clarification, visit www.IRS.gov or talk to a qualified certified public accountant.

You also can look at your house in the same way. If you owe less than your home is worth, you could look into a home equity line of credit from your bank. These loans typically carry low interest rates and can be drawn down over time as you need the money. Again, you need to be certain that you can afford the minimum payments required on this loan, in addition to your mortgage. These loans frequently include a loan origination fee, which car loans do not.

Micro-lending is on the rise in the United States and offers another source of small loan funding. The Wyoming Women’s Business Center (www.wyomingwomen.org) can assist with Small Business Administration (SBA) micro-loans for your business if you are turned down by a traditional bank.

This organization can lend up to $50,000 to qualified borrowers, but the average SBA micro-loan is around $13,000. The rates vary, and you will need to submit a loan package, which includes a business plan and budgets, and personal financial information.

Peer-to-peer lending websites, such as prosper.com and lendingclub.com, and those with a social impact perspective such as zip.kiva.org and socialfinanceus.org, also offer a venue for borrowing money for your business. These sites require applications with information similar to a full loan package and, depending on the site, the loan structure and the underlying risk of the business proposal, interest rates will vary from zero percent at zip.kiva.org up to 36 percent at other sites.

All the funding sources mentioned in this article may offer a less expensive alternative to using your credit card.

A blog version of this article and an opportunity to post comments are available at http://wyen.biz/blog1/.

The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email wsbdc@uwyo.edu or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.