The vast majority of startup businesses require a loan to kickstart their operation, so if you’ve got a great idea for a profitable business, this is likely to be your first port of call. There are several options available to startup entrepreneurs, but not all will be right for your circumstances, so it’s essential that you do plenty of research. To maximize your chances of securing any loan, you will need to ensure you have a comprehensive and detailed business plan to show the lender that you have considered all the expenses and are realistic in your financial projections. A good credit score and having some funding already in place will also put you in a better position.
Here are the most common types of loans which could enable you to get your business off the ground sooner than you think.
Types of Loans for Startups
SBA startup loans
The Small Business Administration (SBA) does not issue loans but instead partners with approved lenders who work to the SBA’s guidelines. The guidelines are intended to minimize the risk which lenders face so that applicants find it easier to apply for a loan successfully. SBA loan programs for small and medium-sized businesses include microloans, SBA 7(a) loans, and CDC/504 loan program. You can find out more about SBA loans at www.biz2credit.com/. Loans can range between $500 and $5 million.
Business credit card
Businesses can also apply for credit cards, which can be used to fund initial startup expenses such as inventory, office equipment, or marketing costs. You may even be able to take out a cash advance. If you have a good credit score, you shouldn’t have an issue being accepted for a credit card, but it’s best to look for those with 0% or very low APR and possibly other rewards like airline miles.
Crowdfunding
In the early stages of development, equity crowdfunding may be an option which gives investors the opportunity to buy shares in your company. However, the investors are taking a risk because if your business is not successful, they will not get their investment back.
Personal loans
In some cases, personal loans can be used for starting a business which can be a quick source of funding (in as little as 24 hours). You will need a higher credit score and need to be aware that your personal credit will be impacted by the loan and you may find it difficult to get another personal loan should need one in the future. One of the biggest advantages of a personal loan is that there are no restrictions on how you use the money where some business loans will stipulate what the funds can be used for.
If you don’t have a good credit score or much experience in business you may be able to take out an equity loan on your home as the lender will have the security of your home as collateral. This is a high-risk strategy as you could lose your home if you don’t keep up with the repayments, but it can offer lower interest rates than some options.
Equipment financing
If you already have funding for some areas of the business but are struggling to find the money for equipment, you may want to consider equipment financing. You can apply for a large amount of money which is repayable over a number of years to spread the cost.
Friends and family
Finally, you may have friends or family who may be able to loan you the money if you can work out a repayment plan and with interest. This eliminates the worry over credit scoring, but any agreement should be put down in writing to avoid complications in the future. You can find more advice on family loans here.
