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What exactly is a business startup loan?

The startup loan can be any loan that is used to start a business. The funds can be used to purchase inventory, hire staff, lease equipment or create a new product. Startup loans are typically sought by companies at the beginning of their business to help them grow.

Consider these 8 startup business loan options

Business credit is usually required or high revenues. Startup loans are different. They are given with the understanding that it can take some time for new ventures to build creditworthiness. You can use different types of funding to support your company. Here are eight of the most popular options:

1. Self-financing

You can finance your business venture using personal loans, credit cards for businesses, or a second mortgage. You might also borrow against your 401(k), or other retirement account. This strategy allows you to avoid the requirements of a business loan, and maintain your full ownership without having to involve external investors. This option may expose your savings and personal assets to risk.

2. Financed by family or friends

Another option is to raise funds from family and friends. You can give them a share of your business or an ownership stake in return. They may not do credit checks but offer favorable terms. You run the risk of damaging your personal relationships if you fail to pay back and your business fails.

3. Local business funding

Traditional business loans are also available from local credit unions, community banks and nonprofits. These smaller lenders may be more willing to work with you because of your experience in the industry than larger lenders or banks. The requirements, rates, and terms can vary from lender to lender. However, the lenders are usually more flexible and tailor-made for local businesses and startups.

4. SBA Loans

Most of the loans are not provided directly by SBA. It instead backs them via certain lenders. SBA offers a variety of loans depending on the type you need and what you plan to do with them. The SBA guarantee, while it may take some time to approve, can help you get a large loan with good terms even if your score isn’t perfect.

SBA’s 7(a), which provides funding up to $5,000,000, is the most popular option.
The SBA Microloan Program offers up to $50,000 in loans for the start-up or expansion of a business.
The SBA loan program 504 is perfect for entrepreneurs who want to purchase real estate or equipment.
The Community Advantage Loan Program is designed to help businesses in underserved areas.

Use the SBA’s tool to match lenders for optimal loans. This tool allows businesses to compare offers of loans and find the best lenders for their needs.

5. Crowdfunding

Online crowdfunding can be used to fund your startup by attracting both known and unknown donors. There are four main types of crowdfunding: debt, rewards, and equity.

Equity crowdfunding is when you give a portion of your company in exchange for money. Debt crowdfunding is where you get money that you have to repay with interest. Startups don’t choose donation-based platforms like GoFundMe because they lack tangible rewards. In rewards-based campaigns you can offer your products or services to contributors as a token.

6. Online business loans

Online business loans allow you to receive the full amount of the loan when you accept its terms. These loans are often easier to apply for and have a quicker application process. You’ll be required to make regular payments until you repay the loan.

Online lenders provide credit lines to small and startup businesses. BlueVine and Fundbox are best for those that have been in business only three to six month. Shopify Capital offers loans to small businesses without the need for a credit report.

7. Grants

If you own a small company, you can also look into local, state and corporate grants. These grants have a number of advantages. You do not have to repay them. You’ll want to ensure that your vision for the business fits with the grantors’ objectives. This will make you stand out among other applicants.

Grants.gov has federal grants for small businesses. Small Business Development Centers can provide you with personalized advice about grants, financing and running your small business.

8. Business Lines of Credit

A business line-of-credit provides ongoing funding for your startup. You don’t get a lump-sum like you would with a traditional loan. Instead, you can withdraw funds up to a certain limit as and when needed. It’s also more flexible than a loan because you only pay for what you actually use.

How to get a loan for a new business in just 4 easy steps

The details of getting a loan for a new business depend on which funding option you select. Every loan application follows a similar process.

Calculate your borrowing needs and learn about the lender’s requirements. Review your business and personal credit report.
Choose lenders: Consider both fintech and traditional banks. Assess the offerings by comparing loan amounts, rates of interest, fees and repayment terms. Shortlist the strongest contenders.
Follow the instructions provided by your lender. This usually involves submitting documents such as identification, financial records and business plans.
Access Funds: After approval, you will receive a check, a credit card or direct transfer to your business account.

Is it possible to get a loan for a small business with no money up front?

You don’t have to pay money up front for most business loans. If you are getting a loan backed by an asset, such as a business auto or equipment loan, the lender may ask for a downpayment. Some lenders want to know that you have invested money or effort into your business.

What credit score is required for a business startup loan?

Minimum credit scores for startup loans can vary depending on the lender or loan type. A personal credit score of at least 600 (out 850 possible) is advantageous. However, certain options such as crowdfunding do not weigh credit heavily.

What are some alternative ways to finance a new business?

There are several ways to finance a new business:

Use your own savings or assets
Borrow money from family and friends
Use crowdfunding and alternative financing methods

Find your startup’s financial match

Business loans are a popular way for startups to boost their growth. When you’re unfamiliar with this type of financing, it can seem complex. Explore the various loan types listed above. Choose the loan that matches your risk parameters, capital requirements and needs.

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Author: Adeel Qayum

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