As an entrepreneur, you have so many opportunities and so much potential ahead of you. Cash, or as a matter of fact, the lack of it, is one of the main obstacles that most startup business owners who dream of turning their idea into a huge success have to overcome.
This article will show you the best startup funding options available out there and how your small business can qualify for it.
What is a Startup Business Loan?
Startups with little to no business history, have limited access to traditional financing and business loans. You need an investment to start your business. It can be for a thousand different reasons – from leasing office space to buying machinery or equipment or hiring staff or just to cover monthly expenses. If you are looking for funding then the easiest option is to take a startup business loan, which is a kind of financing that is aimed specifically towards startups. If you have the money for your business then also you might consider a small business loan as there are many unexpected and hidden costs that can get you stressed and if you don’t have a financial cushion then it can be a big issue in realizing your dreams. If you are wondering how to get funding, here are some points to find the right funding for your startup.back to menu ↑
How can a startup loan accelerate your small business?
Your startup is your vision and dream and you might not want to share the control with anyone else. A small business loan can be helpful in empowering you as you need not share equity with other investors. You also can select the funding most suitable for your needs or that component of your business which needs funding and have greater control by not splurging or overspending in other areas.
Recommended Reading for You:6 Factors That Keep You From Getting a Small Business Loan
How much loan can a startup business get?
Typically, a small business can get loans from $5,000 to $5million. The actual requirement would be based on your business plan and its assessment by the lender.
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What is the best small business loan to get?
Here are ten different small business loan ideas. You can assess the best loan suitable for you from them –
- Term Loan –This is the most common form of loan where you receive an amount that has to be repaid with interest after the term. This is recommended in a situation where you know exactly about your requirements, for example, you need funds to buy more goods for a confirmed order. They are not recommended as working capital since many things might defer the repayment and you will have to pay more interest. Term loans can be secured with collateral and or other assets as a guarantee to the lending institution that you will pay off the borrowed funds. An unsecured loan Is faster to obtain but you must be prepared to pay more.
Recommended Reading for You:Secured Vs Unsecured Small Business Loan
- Business Line of Credit –They are great if you are looking for flexibility and a sizable amount. They operate as a credit card by revolving lines of credit so you can keep afloat or repay at your convenience. The major difference is that the credit limit is much larger than normal cards.
- Rollover for Business Startups (ROBS) –They are actually not a loan but a transaction where funds from your 401(k) or IRA (individual Retirement Amount) are rolled over to your startup. You are not incurring debt in this case nor will you pay taxes or penalties if you fail as it is your money, but on the other hand, you are putting your retirement fund at risk, as you jeopardize your retirement if your business fails.
- SBA and microloans from non-profits –Small Business Administration (SBA) offers loans for small businesses. The downside is that these loans are really small and might not be useful to you. Moreover, these loans are hard to get as they require collateral or a physical asset that can be sold when you default. They also take a long time to be processed and issued.
Many non-profit organizations provide microloan for special situations. You might avail them if you belong to a minority or an economically struggling community or a traditionally disadvantaged small business owner.
- Business credit card –A Business Credit Card will provide you with a revolving line of credit easily. The credit limit is usually set and just like a consumer credit card, a business credit card carries an interest charge if the balance is not paid in full each billing cycle. They can be useful if you have a good credit score as the issuers determine your annual percentage rate on your personal credit score. It is recommended that you use them in an emergency situation and not use them for financing your business.
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- Equipment Finance Loan –This is helpful if you have to purchase, lease, or borrow any equipment for your startup. There are different varieties of these loans catering to specific business and equipment. They differ from a term loan as they are financing a piece of equipment that serves as collateral. If you default then the lender can only repossess that equipment and your other assets or business are not in jeopardy. Thus, they offer a more cost-effective and low-risk way to acquire equipment or other physical assets.
- Invoice Financing – if you have customers who are billable, Invoice financing,also known as invoice factoring, can be a good option. This type of funding allows a startup to borrow money against the amounts due from its customers. Invoice financing looks into the credit history of the customers and it is possible for a start-up or new business to get funding if it has a good reputable customer line. Another advantage of this kind of funding is that you retain complete equity.
Recommended Reading for You:Invoice Factoring: What Is It and How Does It Work?
- Business Loan for Bad Credits – You arrange some funds and start off your business but then the reality strikes and you are out of funds. If you have poor or no credit history then also you can avail of these loans. You have to prove that you have a good business plan with solid cash flow projections to prove that you can repay your loans to avail of these loans though.
- Business loans for women-owned startups – If you think that being a woman entrepreneur is difficult, then there are lenders with specific programs to fund women business owners. The range comprises of a variety of options to suit your requirement and with lucrative and generous offers and discounts.
Recommended Reading for You:Overcoming the Business Challenges Women Entrepreneurs Face
- Startup Consultants – A startup consultant can mentor you on your way to success and can successfully connect you to the right funding. In the process, they also check your viability for funding and can provide additional services like provide services like creating or fine tuning your business plan, insurance and check if you are covered with all basic business requirements. They charge a premium and if you are seeing this as an extra cost then think again as a wrong step with something as vital as financing can jeopardize your business very early.
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What are the other sources to fund your startup?
If you don’t like the idea of taking a loan, there are several other ways to raise funds for your startup, here are some more avenues to raise funds.
- Friends and Family– This is the most common way how most startups begin their journey. It is the easiest, quickest and the most informal way to acquire funds. However, you have to be careful when you are pulling in resources from your near ones. Explain your business plan in detail and spell out the investments and the risks for everyone. You also need to legally set in place the responsibility, amount, equity or repayment terms, collaterals, and other aspects of the investment. Remember that you are putting your personal relationships at risk too and if your business fails for some reason, it won’t be easy to repair the relations.
- Venture Capitalism – If you can project a solid business plan or prospect in your startup then you can approach and attract investors who have the capital to invest in your business. There are certain advantages to venture capital investments. They normally lookout for and focus on high growth areas. They are more willing to take greater risk than traditional financing but this might be in exchange for higher returns. They also have a bigger scope of investment but they also come at a cost. Most venture capitalists invest in exchange of equity so you might have to give up some of the controls of your startup.
- Crowdfunding – Crowdfunding is exactly what the name suggests – raising funds for your startup from a crowd. These people, called crowdfunders contribute financially but are not technically investing in your business as they don’t receive any equity or financial return. Instead, they get a gift which commonly is the product you plan to produce. This works well if you are producing something physical e.g. a bag, or a mention in the credits of a creative product, like a film. Crowdfunding presents a low-risk situation as you are under no obligation to repay your funders while retaining full control of your business. There are a number of crowdfunding platforms and you need to check the rules in detail before using them.
Recommended Reading for You:9 Best Crowdfunding Platforms for Business
- Grants – Business grants are free funding where you don’t have to pay interest or fees. But this free funding or grant comes with quite a few riders. Grants come easy if you have access to and could impress the select group offering the grant. The process is generally long as you have to build access or network, go through lengthy application processes, and pitch your idea repeatedly to different audiences. It usually takes time to align the people offering grants to align their vision with your plan. This is not for you if you need quick funding. However, if you are a woman entrepreneur or belong to a minority or underrepresented group this is easier as the competition there is less.
What are the requirements for a startup loan?
Apart from your personal information, here are the other common documents lenders ask for with startup business loans.
- Personal credit score – Lenders always check the personal credit score of the owner so the credit score tier information is essential.
- Cash flow and income – The debt-to-income ratio of a business becomes important when lenders are assessing its risk. Businesses with higher cash flow and income have a better chance of securing a loan. Bank statements, balance sheets, and tax returns also reveal the present debt of your business and its earnings.
- Age of the business – The number of years in business matters so keep your business license ready.
- Collateral – If you have fixed assets it may be easier to get a loan or a low-interest rate. List all you can present as collateral.
- Industry – The lenders assess the industry you plan to work in or cater to for risk assessment. Keep your business plan ready.
Which banks offer startup business loans?
You can also turn to banks and credit unions for small-business loans. Here is a list of well-known banks that offer startup business loans.
- Wells Fargo
- JPMorgan Chase
- Bank Of America
- Capital One
- US Bank
- Huntington National Bank
- Live Oak Bank
- TD Bank
- Celtic Bank
Who are the best loan providers for startups, apart from banks?
BlueVine If your business plan requires invoice financing then BlueVine can be your best choice. BlueVine has streamlined processes which have simplified the invoice factoring in terms of fees, confounding and restricting contracts, and inconvenient termination clauses. Now you have more control over your products or you can choose which products need to be financed without the limiting long-term contracts and high fees.
$5,000 - $5M fast funding for your business. Apply online and get approved in as fast as 20 minutes
The services are transparent, easy to apply for, and get approved and are appreciated by cash strapped business owners. They can offer up to $5million in invoice financing which is way above the average. They also offer a variety of term loans and lines of credit for most users and requirements. BlueVine also has a special resource center for women entrepreneurs and applies relatively lower application requirements for them. Apart from women-owned businesses, BlueVine has the experience, expertise, and money to finance your big project whatever it may be.
If you prefer convenience and versatility then you should place Kabbage on top of your list. It is actually possible to apply to Kabbage online and get approval within minutes and the funds within the same day. It also has very straight and simple eligibility requirements for its business line of credit: you have to be one year in business with $50K annual revenue to be eligible for a credit up to $100,000.
Small business funding options that fit your business. Qualify in 10 minutes for up to $250,000 line of credit
They don’t need a minimum credit score and are a fantastic option for entrepreneurs with low personal credit. Kabbage looks into your business’s revenue and cash flow, so business owners with a high revenue model will get easy approval. Kabbage also offers unmatched convenience and you can have the money in your PayPal account, bank account, or a Kabbage card. The ease, convenience, low credit score, and speed of approval also makes Kabbage one of the favorites for the woman entrepreneur.
OnDeck offers both term loans and business lines of credit. It is good for you if you may be a good fit for your business if you need fast cash. Online or phone applications take a few minutes and get the funds within 24 hours of approval for a term loan and instantly for a line of credit with withdrawals between $1K -$10K. They also require looser qualification and credit scores for approval.
A+ rating with BBB, 9.8/10 customer ratings at TrustPilot. Relaxed eligibility requirements and transparent Information for fast financing solutions
Unlike typical banks, OnDeck doesn’t requite collaterals and offers discounts for repeat borrowers. However, you also have to look out as their loans can be expensive with a high APR. they also have a fixed repayment plan and early repayment also don’t get any benefits. It might not be the best for startups but definitely, a good option if your business has constant sales and you are looking for expansion.
Lendio serves as a lending market, where the entrepreneurs and lenders with their offers come on a common platform. You can apply really quickly as it is really just a click away. Your application will be scrutinized and requirements matched with the available loans, lenders, and offers and you can choose the plan best suited for your business. The team at Lendio will guide you with their expertise to complete the loan application and get approved. The typical time to get the funds after approval is 2-4 weeks.
The best part of Lendio is the availability of a huge number of small-business loans and lenders. Also, Lendio can match you with other funding agencies too if you are not happy with their offers. With loans starting as low as $500, longer loan term, and short funding period, they offer the best startup loans overall, especially for small business owners. They also offer some of the best plans for women entrepreneurs or business owners.
If you are worried about getting funding for your business with low or bad credit, then Fundbox might be your answer. Getting finance from Fundbox requires a personal credit score as low as 500. Moreover, Fundbox doesn’t need collateral or a personal guarantee for business lines of credit under $50,000. The precesses in Fundbox are really fast – you can apply online and will get an assessment of your business. You can receive the funds in your account within the next few days. The simplified and automated process along with low personal credit scores and easy availability of funds have made Fundbox one of the most popular startup lenders., They also are favored by women entrepreneurs as generally they are denied loans in most cases due to lower credit scores. If you need business funding don’t hesitate to apply to Fundbox, even if you have bad credit.
As a startup business owner, you have plenty of financing options. We hope that this article will help you to find the one that fits your small business needs, in order for your startup to get that funding and turn it into a huge success.