How to fund your indoor golf business
With your business plan in hand, it’s time to tap all your available resources to
find the best available financing at the lowest cost to you. As you enter this
phase of your indoor golf startup, keep in mind that there are lenders, accountants and attorneys who specialize in small business financing. In some cases, they represent your best chance of a smooth, successful financing experience.
We recommend starting your financing investigations by weighing your ability
and willingness to leverage your own assets and working your way from there
to conventional and other potential lending sources.
Home Equity: If you are a homeowner, you may be able to leverage your home
equity through a home equity line of credit (HELOC), or a home equity loan
(HEL). The biggest advantage to this is that leveraging your own existing equity
should be possible at a relatively low interest rate. The disadvantage is the
inherent risk involved in putting your home up as collateral for your business.
Always take care not to assume more risk than you could handle.
Retirement Funds: You can leverage retirement funds for your business
investment and avoid penalties by working with a company that specializes
in helping investors take advantage of the Entrepreneur Rollover Stock
Ownership Plan (ERSOP) or Rollovers as Business Startups plan (ROBS) to fund
new businesses. In these scenarios, your retirement funds become an investor in your business instead of being invested in publicly traded equities or fixed-
income investments. Using this kind of account is quite complicated, so make
sure you work with a reputable investment professional to ensure your ERSOP
or ROBS is set up and executed correctly. As with the use of home equity
funds, use caution as you look at utilizing retirement dollars. Know the risks of
putting this money ear-marked for long-term security on the line for a business
Family and Friends: Gifts, loans, and investments from family members can
be a great source of capital for your business. If you do accept funds from people you have personal relationships with, make sure you have an agreement in writing,
with the terms and conditions of the gift, investment or loan clearly outlined--
including investment terms, payback terms, interest, and what happens if you
default. Having the details hammered out in an agreement may prevent a
misunderstanding down the line.
Traditional Loans: Another option is to leverage traditional business loans,
or commercial loans. There are many types of commercial lending, including
secured and unsecured loans, short- and long-term loans, equipment loans,
and business lines of credit. Expect to put up at least 20% of your investment
to be considered for these kinds of loans, and know that many traditional
lenders may not understand startup business models and that there are lenders
who specialize in this area. As with any financing source, it’s always in your best
interest to shop around, so make sure you check out business loans at multiple
U.S. Small Business Administration Loans: The SBA offers loans through
participating banks and lenders, and since the SBA will guarantee up to 85% of
the loan, there is less risk for the lender—which can translate to a lower interest
rate for you. SBA financing is not really a government loan, but rather a private
loan backed by government funds. There are multiple types of SBA loans you
can investigate. Make sure you carefully evaluate the pros and cons associated
with taking out an SBA versus a traditional loan, i.e. the cost to establish the
loan, the length of the loan, and the interest rates of the loan. Also worth noting is the fact that individuals with high net worth may not qualify for this type of loan.
Online Financing Centers are online companies that serve as clearinghouses
for financing. These companies have multiple financial institutions
in their systems to review your financial information and evaluate your request
for financing. They host the equivalent of speed dating for the loan industry--
you provide all of your information, then lenders review it and decide if they’d
like to initiate a relationship with you.
We'd love to hear from you. Is there another source of financing we missed? Do you have advice on how to think about any of these? Leave us a comment and share.