Most small-business lenders require one year of business to be eligible for funding. However, if you’re looking for a new business loan, other financing options could be offered to help you get moving and some kinds of small-business loans.
Seven options for financing startups for small-sized companies to look into.
1. SBA loans
The U.S. SBA’s microloan program can be described as friendly to startups, providing loans up to $50,000 to small-sized businesses that want to begin or expand. The typical SBA microloan amount is approximately $13,000.
SBA microloans are managed by community lenders that are non-profit and are generally less difficult to obtain than loans with larger amounts. However, the downside is that funding may not be enough for all borrowers.
The flagship SBA 7(a) loan program offers loans that borrowers can use to help start businesses. However, SBA 7(a) loans can be more difficult to obtain. They are typically offered to established companies that can provide collateral, a tangible property, such as equipment or real estate, which a lender can sell if they are in default. The requirements are very strict, and even if you meet the requirements to be eligible, obtaining an SBA loan can take a few months.
2. Business loans for personal use
Small-business owners with a new venture can get financing through individual business loans like the ones offered from an online lender. Personal loans are determined by your credit score, making them an excellent option if your business isn’t yet established enough to be eligible for other business loans.
Personal loans are often characterized by very high APRs (up to 35%), particularly for low credit customers. This type of business startup loan is ideal for those with good credit scores and a solid income.
Microloans can also be accessed in addition to the SBA program. Microlenders and non-profit lenders may be a more straightforward option for obtaining business loans for startups, particularly if you’ve got an unstable financial situation. Many of these lenders concentrate on underserved or minority small-business owners, as smaller businesses in areas experiencing economic hardship.
Because these types of loans typically are from mission-based businesses, they are more likely to be superior to what you get from a private lender, allowing you to expand your business and build a better credit score. This can allow you to be eligible for other forms of loans down the line.
4. Family and friends
The most popular method to finance a new company is to borrow funds from relatives or friends. However, if your credit isn’t great and your family members and friends are aware of it, you’ll need to persuade them to be able to repay them.
In these scenarios, the cost that could result from failing isn’t just financial. It’s also personal.
Cut your list of family and friends to those who are aware of the plans you have in mind and try your best to ensure that they are at ease with the risk involved.
Private foundations that offer small business grants and government agencies are another option to get funding for the startup of your small-scale company. They’re not loans, which makes them difficult to access. However, free capital could be worth the effort for businesses that are just starting.
For instance, if you have served in your time in the U.S. military, you are eligible for small-business grants to veterans. Additionally, there are small-business grants for women.
6. Credit cards
Many entrepreneurs depend on business credit cards to fund their businesses. It is possible to use these cards as a short-term loan for business purchases that you can pay off quickly.
Don’t let the balance sit and interest charges build up, rapidly changing your credit card into a costly business loan for small businesses.
Rates for the annual percent of corporate credit cards are determined largely on your credit score. If you’re a person with poor credit, you’ll pay higher interest rates.
Crowdfunding is now a common method for small companies to raise funds because sites such as Kickstarter and Indiegogo allow you to solicit money through online campaigns. Instead of remunerating your supporters, you instead give them gifts. This is the reason this method is known as rewards-based crowdfunding.
Avenues can also be used for equity crowdfunding, where you can tap into a pool of investors that agree to help finance your small company with equity in return for ownership of the. You may also contact small-scale investors through this kind of crowdfunding, not only accredited investors.
Crowdfunding can be a fantastic financing option for business owners who wish to try out their product or service to customers and measure the response without taking on debt.
What to look out for when searching for loans for businesses starting out
Certain lenders might not be willing to work with new businesses since they don’t have the experience and business background to prove their ability to pay back the loan. If you’ve only had less than a year’s experience in business or require money to begin a new company, you’ll probably need to take out a loan based on your financial situation.
A few lenders provide startup business loans to borrowers with bad credit (a FICO score below 630). Be wary of any lender offering startups loans without a credit check or guarantee of approval. This could be a costly option or an enticement.
Keep a low balance on your credit cards, and keep track of all expenses. To improve your credit score quickly, make sure you check the credit report for any errors that may be weighing on your score. You can dispute these to the credit bureaus.