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What type of Startup Business loan are you looking for?

Startup Business Loans

Where to Find Funding

If you’re like many entrepreneurs, you used your savings to get your new business up and running and may have borrowed from family and friends too. Once that money is put to good use, you need to hire employees, buy furniture or equipment, upgrade to the latest technology and pay for inventory. A startup small business loan is often a viable next step.

Funding the cash needs of your startup can be a challenge, but it’s not impossible once you understand what’s involved, the types of financing to look for and how to qualify. To help you find the best startup business loan options for your unique situation, this guide covers the essentials of financing a new company including:

We’ll also take a closer look at each financing method and break down:
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What type of Startup Business Loan are you looking for?

What is Startup Business Financing?

Because a new business is unlikely to get approved for traditional funding, you’ll need to get creative about finding sources of capital. You’ve probably seen TV shows where entrepreneurs pitch their business ideas to venture capitalists in the hope of exchanging some equity for needed funding. You may also be familiar with crowdfunding campaigns that have helped startups get the cash they need to develop or market a product.

But these methods aren’t the only ways to finance a fledgling business. Personal loans, credit cards and SBA loans are forms of startup business financing.

Traditional Business Financing Versus Startup Loans

Banks and other lenders offer a number of financing tools for established businesses, such as short-term loans, commercial mortgages and lines of credit. To minimize the likelihood that the money they lend won’t be paid back, most lenders expect established borrowers to demonstrate they have a lengthy time in business, ample cash flow and personal and business credit scores within a certain range. In some cases, lenders also want collateral before they’re willing to approve a loan or other type of financing.

Compare this to a new business with a short track record, little or no credit history and limited cash flow and collateral and it's easy to see why lenders are leery of handing over cash for new business loans --- there's a much higher risk that an unproven startup will default on what they owe.

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Three Funding Alternatives for Startups

When you’re looking for alternate access to cash to get your startup further off the ground, you can expect to use your personal credit and even your previous work experience to qualify. How much you can borrow and what’s needed to qualify depends on the type of small business startup financing you apply for, so let’s look at what applying for personal loans, credit cards and SBA small business loans can involve.

Personal Loans

Using a personal loan to give your business startup a financial boost can be a good option if it doesn't have an established history and you've got a solid personal credit score and decent income. Many personal loans are unsecured, which means you won't need a guarantee or collateral like you probably would with startup loans for business running. With most personal loans for business startups, you also won't need to include a plan or financial projections with your application. If you have to state your purpose for the funds, your lender may want more details about your startup.

Here are some other key details about how to apply for a startup small business loan smartly.

What are the costs?

The interest and other costs you pay for a personal loan can vary a lot depending on your creditworthiness and income. You may get charged a fixed interest rate of anywhere from 6% to 26%. Some lenders also tack on origination fees ranging from 1% to 6% of the loan amount.

What are some pros and cons?

A personal loan is easy to apply for, and some can be approved and funded within just one day. It may not require collateral or a guarantee, so applying may get you the cash your business needs quickly and without headaches or hassles. On the downside, taking out a personal loan isn’t going to help establish credit history in your company name, and it does leave you on the hook if your venture isn’t a success.

Business Credit Cards

Business credit cards aren’t just for large corporations with multiple revenue streams and big budgets. As a business owner, you can apply for a card in your company name, even if it’s a brand-new startup. A business credit card can give your startup more buying power and make it easier to keep business and personal expenses separate. Having a dedicated card for your startup can also help you build a company credit profile so you can qualify for other types of financing down the road.

You may find that getting a company credit card is a lot easier than getting approved for a business loan. Rather than applying for several credit cards and risking multiple hard inquiry hits to your credit score, it’s wise to do your research and only apply for one card that matches your needs. If you’re looking for short-term startup financing, aim for one that offers a 0% introductory APR for six months or a year and as high of a credit limit as possible.

Here are answers to some common questions about applying for a business credit card:

What are the costs?

Business credit cards can have a variable interest rate between 14.49% and 24.49%. New accounts are usually hit with the highest rates. Some credit card companies also charge an annual fee just to use their card. These can range from a reasonable $25 to a whopping $500 depending on the card and its perks. Other common costs include fees to make balance transfers and get cash advances. There are also late payment, over-the-limit and returned payment fees.

What are some pros and cons?

Applying for a credit card in your business name and using it wisely can help you quickly build a commercial credit history, which can pave the way for greater borrowing power as your business grows. However, if you don’t make payments on time or get caught in a cycle of paying high interest charges, you could end up with long-term business credit problems that downgrade your personal score too.

Rather than applying for several credit cards and risking multiple hard inquiry hits to your credit score, it’s wise to do your research and only apply for one card that matches your needs.

Small Business Administration Loans

The Small Business Administration (SBA) has several loan programs that let small businesses borrow up to $5.5 million for certain purposes, but most require a minimum time in operation and have revenue and credit criteria. However, there are two SBA-backed loans available to help new startups with less than two years of business history — the Microloan and Community Advantage programs

These SBA startup loans can be used for a number of purposes but also have some restrictions. For instance, Community Advantage loans are only available to businesses in underserved areas, and Microloans are only offered through nonprofit or community-based organizations.

Additionally, there may be specific business startup loan requirements for applicants, such as providing a personal guarantee or collateral or having a cosigner. Thoroughly checking and comparing the details of these two programs can help you decide which one suits the size and needs of your startup.

Here are some details to consider about the Microloan and Community Advantage loan processes:

What are the costs?

The interest rate is usually prime plus a percentage. The combined rate can range from 7% to 9% for Community Advantage loans and 8% to 13% for Microloans. Other costs typically include application and loan processing fees and closing costs of 2% to 5% of the amount you borrow.

What are some pros and cons?

A big advantage of SBA loan programs is that they can give you access to financing for your startup even if you have less-than-perfect credit and getting money elsewhere seems hopeless. The fees charged are in line with those you’d pay to other lenders, and you’ll get a reasonable, fixed interest rate too. Two major drawbacks are the in-depth application and extremely long approval process that can leave you waiting weeks or months for business funding.

The Small Business Administration (SBA) has several loan programs that let small businesses borrow up to $5.5 million.

What Do You Need for a Startup Business Loan?

Personal loans, credit cards and SBA loans are three good options for getting the cash you need to grow your new business. You may be able to use one or more to take your startup to the next level of success. With any kind of business credit, it’s key to understand all the details before you apply so you can use those borrowed funds to your best advantage.

Ready to Take Your Startup to the Next Level?

Accessing the right lending assistance can make figuring out your financing options and getting the best terms and interest rates easy. For expert help, fill out our online form or give us a call at Lendzi. We offer clear-cut terms, flexible borrowing options, and an uncomplicated application process that creates a custom approach to financing. We’re here to put our skills and industry knowledge to work to help take your startup to the next level!

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