Startup Business Loan – Deciding which startup financing option is right for you starts with asking some important questions, all of which are listed in this guide.
Startups have more funding options than ever before – which means there may be more ways to highlight which option is best.
Startup Business Loan
In addition to the usual things to consider when looking for startup funding – how much money you need, when you need it, under what terms, and so on – you need to educate yourself on everything from fintech and factor rates to crowdfunding and 401k rollovers. . The process can be tiring, to say the least, but you’ll be better for it.
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The good news is that gaining this knowledge puts you one step closer to getting the funding you need to grow your startup. Use this flowchart to guide you toward the best startup financing for your company. Answer the questions honestly about where you end up. Then click or scroll down to read more about the best startup financing option for you.
Not long ago, most startups had few options for business financing other than traditional banks, credit unions, individual investors, and the US Small Business Administration (SBA)—and even those options weren’t available to all businesses.
The Internet changed all that, with online-only lenders, peer-to-peer (P2P) platforms, app-based banks, crowdfunding sites, and experienced business finance advisors with near-instant access to credit card financing and bank loans.
For those not ready to embrace the brave new world of financial technology, many traditional term loans, lines of credit and financing options are available in all the usual places. But depending on your particular situation, you can explore alternative options that you can access from your laptop.
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SBA loans are only available to business owners who have been turned down for traditional small business loans. In addition, the SBA requires applicants to submit multiple years of financial statements and business tax returns, which is not possible for new businesses. The SBA does not lend money itself, but instead acts as a guarantor for banks, credit unions and other lenders.
Bank term loans are a popular option for companies that need financing for expansion, acquisitions or major investments. These loans typically have fixed interest rates, a predetermined maturity date, and monthly or quarterly payments. They also have strict approval standards and often require some type of collateral.
A bank line of credit, or LOC, often works more like a credit card than a traditional small business loan. Lines of credit have less stringent loan approval criteria and do not involve a lump sum that must be repaid in monthly installments. Unsecured lines of credit require no collateral and are often used to pay business expenses. Secured lines of credit can be used to finance large business investments.
Startups that depend on equipment to operate often seek equipment financing to purchase, replace, or upgrade their machines. These funds are typically found in traditional small business loans without credit and down payment requirements. Many small business equipment loans have fixed interest rates and fixed terms so borrowers can make the same payment each month. Leasing options are also available.
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Many personal and business credit cards come with an introductory 0% APR, usually for 12 months, but sometimes longer. These cards work well if you need to finance a large purchase during the first year of your business and don’t want to throw away your working capital on monthly interest. It is important that you fully understand all terms and conditions so that you understand how much it could cost you when the introductory period ends. The process of choosing and applying for the right credit cards can be confusing for new business owners, but you can get expert advice from business finance consultants like Find Business Capital.
Many startups obtain non-bank lines of credit directly from credit unions or through the SBA. Credit requirements are generally less stringent than traditional lenders. Like bank lines of credit, non-bank lines of credit can be secured or unsecured.
A growing number of startups struggling to qualify for traditional bank loans are turning to alternative sources such as credit unions, fintech lenders and peer-to-peer platforms that connect borrowers and lenders. P2P fees and interest can be high, especially for startups with poor credit scores and low income. However, there are many options available, including companies you already know like PayPal.
Merchant cash advances (MCAs) are short-term financing options for small businesses that need a quick infusion of cash. These usually act as an advance for future sales on the company’s credit or debit card. Because MCAs are not subject to the same regulatory standards as traditional business loans, if you’re not careful, you could face hefty fees in the form of factoring rates.
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Equipment financing loans usually come in a lump sum that is for the purchase or upgrade of equipment needed by the business. They work like traditional business loans in that they usually have specific interest rates, term lengths and payments.
The process of using 401k funds to fund your startup is complicated and requires several important legal steps. One thing you should do is move the money into a corporate retirement account that allows you to invest the funds in the business. Unless you have the expertise, it’s best to hire a third-party financial planner or retirement plan administrator to make sure you’re taking the right steps. Downside: You may have to pay a lot of money for their services.
Crowdfunding is a great way to reach thousands of potential investors or lenders, but you’ll need the right products, services, and advertising to get people to send money. For business purposes, you may want to use debt crowdfunding, where contributors act as lenders and are paid in monthly installments; Or equity crowdfunding, where contributors get a piece of your company.
Some entrepreneurs have raised family and friends as investors or lenders for seed capital. If you decide to go this route, it’s always a good idea to treat it like any other business transaction. Get everything in writing, put the terms and conditions in plain language, and make sure the loans you get have the right repayment terms so they don’t turn into taxable gifts. It is also a good idea to ask your stakeholders for advice and convince them of the profit potential of your business.
Pros And Cons Of A Bank Business Loan, Financing, And Credit
Deciding which startup financing option is right for you starts with asking some important questions, including:
The final choice you make depends on your financial situation and needs. If you need a quick infusion of cash to get your business off the ground and start generating revenue, a merchant cash advance can work. If you already have a stable business and decent credit, consider an SBA or bank loan.
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Startup Business Loans: Debt Options For Startups
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