Most companies looking to boost their cash flow find it difficult to get small business loans from a bank. Banks typically want to do a detailed review of your company's mission and all associated financial statements, and see a full-time commitment to the business.
So what do you do if you want try to fund a side hustle? There are several potential sources for an extra cash infusion. You can start getting additional cash flow for your side hustle through the following resources (but keep in mind there's a “warning label" that goes with each one):
This is by far the most common place that entrepreneurs get working capital for any side hustle.
Since you are not doing the business full time, it is difficult to ask others to fund your interest if you have not yet put your own money into the venture. Some entrepreneurs have little savings, so they sell their valuable possessions to get started.
Warning label: Make sure you do not invest all of your money at one time in your side hustle. Consider dividing your savings in half and putting one half in a place that you can't ever use for your business.
Then you can use 35 percent of the other half to provide cash flow for the side hustle now and the other 65 percent for money that will be needed later to build on your success.
401K or IRA Retirement Plan
Many entrepreneurs take money from their retirement plans to fund their side hustle. If you must do this, understand that unless you are 59 ½ years old , you will pay a penalty for taking this money out early, plus additional taxes that need to be paid.
You may want to use the same savings-splitting strategy described above when employing any type of savings.
Warning label: This is a very risky move unless you are older than 60 and have a lot of money saved for retirement. If you use these funds as working capital for your side hustle to fund a new venture and it fails, will you still have enough money for retirement?
Family and Friends
A lot of cash flow for side hustles come from family and friends. They are a logical place to get money since you aren't doing this full time yet. They offer their help, not only because of their belief in the business, but because of the loving relationship you have with them.
Warning label: Only borrow as much working capital money as your family and friends can afford to lose. Do not take their life savings or retirement funds.
Also, please understand if you lose their money, it can negatively affect your relationship with them forever if they blame you.
Getting funding for cash flow through online crowdfunding has become popular for side hustles. There are many people who want to fund your personal passion and sites like Kickstarter and Indiegogo make it easier to reach large numbers of potential funders through social media.
...Create financial projections to determine when the borrowed money can be paid back and what the true cost of borrowing it is.
Warning label: Crowdfunding isn't as simple as putting up a page on one of these websites and waiting for the money to start flowing in.
Running a crowdfunding campaign that produces at least $10,000 of cash flow depends in the beginning strictly on your crowd. Having an already established social network is important to bringing people to the funding site. A lot of the success depends on the buzz that is built in the first 24 hours.
Home Equity Loans
For many Americans, a lot of their savings is in the value of their home. Equity loans through banks are a popular way to draw cash flow for working capital to fund any side hustle. The money that can be borrowed is typically based on the value of the home minus any outstanding mortgage.
Warning label: Your home can be a large part of the financial wealth they have saved for retirement. If this money is used now, what will you use later?
The internet has made it possible for people to borrow money from an individual investor. Based on your credit, these rates can be more expensive than those from business credit cards.
Warning label: The rates can be as high as 20 percent and money is typically lent for less than five years.
In all these cases (except for funding a side hustle through personal savings or crowdfunding), create financial projections to determine when the borrowed money can be paid back and what the true cost of borrowing it is.
Read more articles on financing.
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