Financing a New Small Business

As a startup, you may find that it’s harder to get a loan for your business. Traditional financing solutions may not be available to you or offer you specific solutions that are unique to startups. The good news is that there are plenty of options that you can consider to help you launch your new business. This can be an overwhelming and even frustrating process but knowing where to look for funding can help make this process go a lot more smoothly. In this article, you can learn about the unique challenges with getting startup loans as well as the various options you can consider.

Understanding Startup Business Loans

Before you can begin the process of figuring out which approach will best work for you for your startup business loan, you need to decide whether or not you want equity or debt financing. With debt financing, you don’t have to give up any control of your business, but you will end up paying additional fees on your loan. For most people, this is the option that they decide on because they don’t like the idea of letting someone else have a stake in the ownership of the company.

When it comes to debt financing, there are plenty of options that you can consider. There are also options if you don’t mind giving up a part of your business. It’s important that you carefully consider all of your options, as this can help you find the best solution for your business. You may find that the best approach means having a few different options.

Every business is different and has their own unique needs, especially when it comes to financing a new business. This means that you need to really think about what you need to get your business started and that will help you find the best solutions for your specific needs.

Different Options for Startup Business Loans

As previously mentioned, even though it can be difficult to get funding for startups that doesn’t mean that you don’t have any options for start up business loans. You actually have several options that you can consider to help your business get off the ground and thrive. This section will take a closer look at some of the best options that you can consider when obtaining a startup business loan.

Small Business Equipment Financing

There are different limitations that you may come across when getting traditional loans. Some loans are very specific as to what you can use them for and what you can’t. In some cases, they don’t allow you to use the money for equipment. Equipment financing is an option that allows you to purchase the machinery and equipment that you need for your startup business.

These startup business loans are very similar to traditional loans when it comes to having repayment terms that are set for a specific period of time. Equipment loans have less strict lending standards when compared to traditional loans because whatever equipment you buy with this loan can be used as collateral for your loan. This means that if you default on the equipment loan, the financial institution will seize your equipment in order to get their money back.

Another similar option that you can consider is equipment leasing. This means that you don’t actually own the equipment and are essentially renting it. An upside to this is that you can get newer items through leasing as well or you get a more affordable solution than you may get when you are using equipment financing. The key difference is that with equipment financing, you do own the equipment and can consider them as assets for your business. It can be a good idea to decide which of these options will best work for your needs.

Small Business Credit Cards

Business credit cards can give businesses a line of credit that is unsecured. This is why this can be a great option for startups when compared to traditional approaches to loans. With business credit cards, you can make it easier to separate your personal finances from your business finances. It also allows you to build up the business credit that you need for your startup business. It can be a good idea for you to find a business credit card that offers a 0% introductory rate as this allows you to avoid paying interest for a certain period of time.

In order to qualify for a business credit card, you will typically have to show the combined income for both your personal and business income as well as your credit score. These will also generally require you to personally guarantee payment. When you choose a business card, you should find one that offers sign-up bonuses or a rewards program that you can take advantage of. This is a solution that many startups and small businesses use to fund their business.

Small Business SBA Microloans

An SBA loan is always a good option for startup businesses to try for when financing a new business. The SBA microloans are offered by intermediaries that have been approved, such as CDFIs (Community Development Financial Institutions) or various other non-profit organizations. These loans offer $50,000 as the maximum amount for the loan, but generally, people only get about $14,000 on average for these loans. SBA microloans have a 72-month maximum term, but the average is only around 40 months. This funding option can be used for purchasing supplies or inventory, working capital, furniture, fixtures, or machinery and equipment that the startup business may need.

Small Business SBA 7(a) Loans

SBA loans are not made by the Small Business Administration, but they do guarantee these loans. They offer a variety of different SBA loans, including the SBA microloan. The most popular of their loan programs is the SBA 7(a) program. This program offers loans of up to $5 million. However, you should be aware that it can be very difficult to get this type of loan as a startup business. Just in 2020, only 17% of the money went to startup businesses.

It’s also important to know that you won’t get your money quickly with the SBA 7(a) loans, nor is this an easy process to go through. There is a program called the SBA Express Loan program, which can potentially speed up your process of getting your money if approved. These loans only offer a maximum of $350,000.

When applying for an SBA loan, there are several qualifications including having what they consider to be acceptable credit. They do not have a minimum personal credit score, but if you are applying for any 7(a) loans of $350,000 or less, they will require a minimum FICO SBSS score of 155. This will allow you to avoid a manual credit review. You will be more successful as a startup business getting an SBA 7(a) loan if you have experience in the industry. What this means is that if you’ve worked as a dog groomer for many years and are trying to open your own dog grooming shop, you will be more likely to be approved. You will also be more likely to be approved for the SBA 7(a) if you are purchasing an existing business, such as the case with a franchise. It’s very much worth your time trying to get this loan because you will get very favorable terms.

Other loans to consider are the SBA 504 loans or the SBA Export Loan. The SBA 504 loans are good options for startups that need to purchase equipment or real estate to launch their business. The SBA Export loan is for businesses that do participate in international trade.

Small Business Invoice Financing

Do you get paid (or plan to get paid) through invoices? If so, you may be able to consider getting invoice financing for your startup. This can be an idea to consider if you often have long invoicing cycles, allowing you a convenient way to avoid this issue and get your money. But you should be aware that this can be an expensive financing option. Financing can be very quick if approved and there is minimal paperwork involved with this process.

Small Business Line of Credit

Another option is getting a business line of credit. There are a few things that make a business line of credit a great idea for businesses. You get a lump sum of money that you can use for pretty much anything that you want for your business. But, you don’t have to pay money on the entire lump sum of money if you don’t use it all in one shot. You only pay back what you have actually borrowed from this line of credit. When you pay back that money, you can borrow it again. You can continually borrow from this line of credit as you need to, as long as you have the funds to take away from it. This type of financing is very similar to credit cards in that respect, but you can get access to more money than you typically would with a credit card.

Smalll Business Grants

Business grants can be a great option, but you should be aware that while this is basically free money, there are a lot of things that you have to do in order to try to qualify for this type of funding. To get a grant, you will need to spend a lot of time networking with the group or organization that is offering the grant. Once you have successfully networked with the organization, you will then need to fill out lengthy forms that can be very time-consuming. Then, you need to pitch your idea to the group or several groups of people in order to secure the grant.

Grants can be very difficult to go through the process and these are highly competitive, meaning that there’s no guarantee that you will get the money after spending all of that time applying for the grant. However, you may find more success with getting grants as a startup business if you are in a group that is considered “under-represented”. Grants can be easier to come by for women or minorities, just because there tends to be less competition for these specific grants.

Small Business Crowdfunding

Crowdfunding is a very popular approach, especially for startup businesses. Using well-known platforms like Kickstarter, you can promote your vision in order to raise money for your startup. There are different options to consider when you are deciding on which crowdfunding option to consider. One option is a platform like Indiegogo or Kickstarter, which offers people who give you money rewards. This could be a free month of your services or a free product for their donations. Another option is a platform like Kiva, where you aren’t getting money donated to you. You are borrowing the money as a loan. The last option within this category is a platform like Wefunder, which is an equity crowdfunding platform. This means that you are connected with people who want to invest in your business in exchange for equity.

In order to make the most of your crowdfunding campaign, the business will need to share its goals and vision with the masses in order to inspire them to give you money to realize your dreams as an entrepreneur. It does take a lot of work to market yourself on these platforms, but you do get the satisfaction of validation when people offer you money to help you grow your business.

Small Business Personal Funding/Receiving Funding from Family or Friends

You do have the option for personal funding, whether you use your own money or get money from friends or family. The biggest downside of this is that you are putting your own assets on the line for your business, which can be very risky when you consider the rate of successful startup businesses has. Even in the case of using your own personal money to startup your business, it’s very important that you work towards building up your business credit so that you do have more options for your funding.

If your family and friends don’t have anything to help you start your business, be sure that you don’t pressure them into helping you. This can cause friction in the relationship that can have a negative impact on your life.

There are some ways that you can help yourself as you start your business. You can use your own personal credit cards to help you buy a few things when you start your business, but you want to make sure that you keep records of this so that you can have an easier time separating your business and personal finances. Just be aware that using this approach does have some downsides. First of all, it can have a negative impact on your personal credit. It can also be problematic because personal credit cards tend to have higher interest rates, meaning that it will cost you more, in the long run, using this approach.

If you are really desperate for funding, you could also try using your home equity or 401k to help you launch your startup. The problem is that this is also extremely risky, especially when you are betting your retirement funds on a startup business.

How to Get Small Business Startup Loans

Now that you know which options are available to you, you need to know how you go about getting the funding for your startup business. Making sure that you have a good credit score can be a great first step in the right direction. Before anything else, you should decide how much funding you need. You don’t want to borrow more than you need to, otherwise, this can cause added stress of owing more money than you can pay off right away. You need to be able to clearly articulate the amount of money you need and what you need it for to the loan officer, otherwise, they won’t want to work with you. You are more likely to get money if you know exactly what you need.

To get a loan, you will need the following:

• A business plan that is updated and has clear details about your marketing strategies and your plan for growth.
• Personal credit scores and reports from the 3 major credit bureaus.
• A business forecast that has clear details about future costs and cash flows.
• Tax returns, as well as any IRS documentation for your personal and business accounts.
• Any licenses or registrations that are applied in your state for your business.
• Any relevant financial information including credit card sales, bank statements, and unpaid invoices.
• Any relevant legal contracts including leasing, incorporation, and franchise information.

Conclusion

If you have a dream but not the funding, these solutions here can give you the best chance to helping you realize your dreams. Each of these options has its own pros and cons to consider, but you may find that utilizing any or a few of these solutions can help you launch your startup small business. You do have options, it’s just a matter of finding the best solutions for your specific needs. Getting funding for your startup business can be a daunting and frustrating process, but you do have various options available to you.