It might be difficult to meet some of your financial goals – like buying a new home or saving up for a wedding – without help from a personal loan or mortgage. But if lenders hesitate to approve you for financing because of your bad credit or high debt-to-credit ratio, it may be time to turn to the people who might be more willing to support you: your friends and family members.
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You’ll likely need a wad of cash to get started on the road to fulfilling your dreams. Small-scale ideas like bake sales or car washes may help… but may also not bring in enough money. If you’re looking for non-traditional ways to raise a lot of money, however, consider adopting one of these strategies.
1. Try Crowdfunding
Crowdfunding has recently become a popular way to accumulate funds from a large number of people. This is usually done by setting up an online profile and using a video or a short message with images to explain what you’re trying to accomplish and why you need money in the first place. You can set a goal for your project (like raising $10,000 to start a new pottery business) and keep track of your progress and the number of supporters you have.
There are a number of sites that’ll allow you to start crowdfunding for a small fee. Both GoFundMe and Kickstarter subtract 5% from the money you earn and at least 3% for processing each donation. Indiegogo, on the other hand, deducts 9% if you don’t reach your goal but only 4% if you do. Plus, there’s a 3% – 5% transactional fee that’s charged if your donors send you money through PayPal or pay with a credit card.
You can tap your friends and relatives for donations first and then reach out to others through social media. Besides crowdfunding by strictly accepting donations, you can also use a rewards-based model that offers your donors a discount associated with your project or a free sample of your product. That way your aunt Jackie or cousin Todd has an incentive for helping you out.
Two more types of crowdfunding include debt and royalty-based funding. In debt crowdfunding, you pay your friends back with interest for the money they lend you. Through a royalty system, your buddies receive a portion of the profits you make later on.
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2. Start a Rotating Savings and Credit Association
Rotating Savings and Credit Associations (ROSCAs) are informal financial clubs typically used by lower-income people who can’t qualify for loans or don’t have access to more traditional forms of financing. They’re commonly formed by people within ethnic and cultural communities around the world. For example, in Mexico these groups are known as tandas or cudinas and among Caribbeans and Caribbean-Americans, they’re referred to as susus.
In a nutshell, ROSCAs are lending circles. A group of 10 or 12 people form a group and each person agrees to put in a certain amount of money every week or month. Then, each group member gets a chance to use the funds, which could be up to $2,000 a month if 10 people give $200.
These savings pools are based entirely on trust. So if there’s one month where you don’t have your $200, the nine other people in your circle might be pretty upset with you. When they work well, however, ROSCAs can strengthen the bond you have with your friend group and give all of you the backing you need to achieve your fiscal goals.
3. Form an Accumulated Savings and Credit Association
Or maybe an accumulated savings and credit association (ASCA) is more of your speed. Just like with a ROSCA, you and your fellow group members contribute a fixed amount each month to a shared fund. But in this arrangement, the money that’s given is turned into loans.
An outsider or someone in the group is in charge of managing the loans and letting people inside and outside of the group borrow the money. After a period of time – which can be up to 12 months – each person in the group receives their deposit back with interest.
4. Host an Event
Perhaps you can’t get your relatives to commit to a short or long-term savings pact. Instead, you could throw a party or an event with live music and fun activities. At some point, you can casually pitch your business idea or home-buying plan to your friends and convince them to rally behind your cause.
Of course unlike with crowdfunding or savings clubs, there will be some upfront costs that you’ll have to pay for before your event starts. Unless the function is a potluck where everyone is required to bring a dish, you might have to spend a significant amount of money in order to get something in return.
Photo credit: ©iStock.com/Enrico Fianchini, ©iStock.com/Susan Chiang, ©iStock.com/4774344sean