Tips on How a Startup Can Get A Business Loan

Financing is a vital resource for every startup with an ambition to grow into a successful company in both size and market share. One of the methods of getting money as a business is through a business startup loan that you can use on things such as working capital, purchase of machinery setting up an office and many more.

Most startups don’t utilise the startup loans options available simply because they don’t know how to access the loans, or because they are turned down by the lenders. The process starts with identifying possible business loan sources and preparing the documentation required to convince lenders on the viability of your business lenders. Below are some options where you can get a small business startup loan.

Equipment Financing

You may be getting easy loan approvals from your bank, but that may not be the case when you apply for a startup loan. Most banks have strict lending standards for small businesses due to the high default possibility. Unlike large companies that have already established their markets, startups also lack assets to act as collateral for their loans and have a higher probability of failing. Equipment financing can work as alternative finance to business loans – which are mainly available to established businesses.

Equipment financing loans are designed to help businesses purchase equipment and machinery. It is easier for startups to access this loan type because they have less strict lending standards. Banks have a lower default risk because the equipment bought is used as collateral for the loan. If the startup defaults, the bank can seize the property to cover the money lost. Apart from the increased chances of qualifying for equipment financing loans, startups enjoy repayment structures similar to conventional business loans, with monthly repayments in several years.

Startup Consultants

Starting and growing a business has its challenges, and statistics shows that most new businesses don’t survive five years. One of the contributors to the failure in most startups is making a wrong decision when choosing their financing source. You can avoid making such mistakes by hiring a startup consultant to help you choose the right funding for you.

The consultants will also check your creditability before connect you with a reliable source of funding. Apart from assisting startups find a source of funding, startup consultants also help in other essential services such as creating a business plan and helping you get the best insurance policy for your business type.

Business Credit Cards

Business credit cards are a simple way of getting business finance. Business owners with a good credit score can use it to their advantage because lenders look at the business owner’s credit scores and their income (both personal and from the business) to determine their eligibility. The advantage of this option is that most credit issuers don’t require collateral, plus the cards come with added benefits such as sign-up bonuses and other reward programmes.

It would be better if you choose a card with no introductory financing offer. Doing so will enable you to make purchases using your card and carry the balance up to 15 months without paying interest. Business credit cards are a simple way of getting financing if you have a good credit score, but may not work for people who have defaulted before.

Invoice Financing

Startups that are already operational can get loans using invoices if they give their products on credit terms. Startups can use the invoice financing option at times when they have cash flow issues due to long invoice cycles. One advantage of this financing method is that it is speedy, meaning you can get the money in a day. This option also has little processes and paperwork compared to other loan types. It is important to note that most of the invoice financing provider will only work with businesses that have been operational for a reasonable time.

Loans from Friend and Family

Startup owners with a bad credit score have a low chance of getting a loan from a bank when the money they have is not enough to run the business. One option for people in that situation is to borrow from family members or friends. Unlike banks, friends and relatives are easy to convince and are less likely to dig into your credit score and bank balances to determine your creditability. Relatives also don’t have strict repayment terms and will most probably not ask for interest.

Parting words

Starting a business is a tough experience, especially when you don’t have enough capital for the venture. Startups have a hard time finding a lender from whom to obtain a business loan, but that should not be a deterrent to growing your business as there are some other ways you can use to get funding for your business. Startups should start with finding all the relevant documents and come up with a business plan that will convince the lenders that their business idea is viable. Other methods such as business credit cards, invoice financing and equipment financing can help when rejected for business loans.