It’s All Collateral: 4 Funding Sources for Small Businesses

by / ⠀Funding / October 28, 2019

Starting and continuing to fund a small business can be a challenge, especially if you are a student or don’t have great credit — but it doesn’t have to be a barrier to success. If you’re ready to get inventive, funding sources are all around you. College students have worked part-time and crowdfunded their ideas, and even the wealthy are pawning their collectibles to pay for their business ventures. But you don’t need a Rolex or a piece of fine art to get in on the game.

If you’re not sure how to raise the funds you need to pursue your projects, it’s just a matter of determining what you have that can serve as a form of collateral. These four sources are some of the most popular, but don’t be afraid to get creative in the name of entrepreneurship.

Pawn Your Title

If you live outside a major city with a robust public transportation system, your car is likely one of your most prized — or at least most necessary — possessions. How would you get anything done without it? Considering how important having access to your car is, most people would never consider selling or pawning their vehicles, but there’s a middle ground: a title pawn.

If you own your car and have a source of income, you’re likely eligible for a title pawn. What this allows you to do is keep using your car and borrow money against your ownership, enabling your car to act as collateral. Just be prepared to repay the pawn loan if you want to keep your car. 

The Inventory Loan

While one of the most popular ways of accessing funding right now is to simply pawn existing possessions, that’s just one way of thinking about collateral.

Inventory loans, which typically cover about 50% of products being purchased for a business, use the goods purchased as collateral for the loan. In other words, if you can’t pay because you don’t sell your stock, the lender can seize that inventory. For companies just getting started that need to diversify their stock, though, this can be a good way to make the purchases necessary to build a client base.

Other Pawn Options

Title pawns are unique compared to most other pawn shop situations. Typically, you have to leave whatever it is you’re pawning in the possession of the broker. Of course, in a title pawn situation, you’re leaving the broker with your title, which is a critical element in ownership, but you still get to use your car.

Despite these seeming differences, the basic principles behind using a pawn shop for business funding are ultimately the same, and their use is becoming more popular. This is in large part because of the greater regulation of payday lending services; without access to payday lenders, more people are using pawn shops. Depending on what you choose to pawn, this is actually less hazardous to your long-term financial picture as payday loan interest rates are extremely high.

Inside High-End Pawning

It may come as a surprise, but even wealthier individuals can struggle to access sufficient business funding. Because of this, a specialty pawn industry has cropped up allowing the wealthy to take short-term loans on pricy watches or use their art collections as collateral. This is a unique industry that takes advantage of the need for temporary funding; loans of the size these specialty pawn services offer are normally only offered over longer time periods.

How you access financial services as a small business owner will, of course, vary widely depending on your credit, how much money you need, and other factors. Regardless of the circumstances, having the right collateral is important.

Luckily, sources of collateral are all around you, from your car title to a musical instrument, a piece of furniture, or — if you’re wealthier — a high-end collectible. You just need to be creative about how you approach your finances, a skill that will serve you well in business.

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Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

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