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Startup Business Loans: Find Funding for Your New Small Business
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Startup business loans can offer a lifeline to new business owners in need of capital. Although business lenders typically require applicants to have at least a few months in operation, there are several new business funding options you may be able to secure to get your startup off the ground.
3 startup business loan options
Online business lenders and financing companies may be your best bet when it comes to securing business loans for startups. Traditional lenders, such as banks, typically require borrowers to have a few years in business, as well as strong financial and credit history. Banks also facilitate U.S. Small Business Administration (SBA) loans, but some of the most popular SBA programs require collateral, a solid credit history and signs of potential for long-term success, all things that might be difficult for startups. SBA microloans have fewer barriers to entry but max out at $50,000.
Online lenders generally have more lenient requirements, and often approve business owners who wouldn’t qualify for bank financing. Here are a few online funding options from online business lenders that may be suitable for your startup if you have some time in business.
Invoice factoring from BlueVine
Time in business required: At least three months
Credit score required: 530
Amount of funding available: Up to $5,000,000
In general, invoice factoring allows you to sell your unpaid invoices to a financing company in exchange for an advance on those invoices. BlueVine will advance you up to 90% of the value of your unpaid invoices. Once your clients pay, BlueVine would collect a fee before sending you the remaining amount.
Eligible businesses must have at least three months in business, a personal credit score of 530 or more and at least $10,000 in monthly revenue. BlueVine may advance up to $5,000,000 with fees starting at 0.25% per week.
Merchant cash advance from CAN Capital
Time in business required: At least six months
Credit score required: 600
Amount of funding available: $2,500 to $250,000
A merchant cash advance is technically not a loan, and despite some risks, provides much-needed funding for small business owners without the need for high credit scores or significant time in business. Typically a merchant cash advance provider — CAN Capital, in this case — provides an upfront sum of money in exchange for a portion of your future receivables, typically credit card sales. CAN Capital would collect a fixed, daily percentage of your business’s receivables until the advance is paid back.
Applicants need at least six months in business, a minimum personal credit score of 600 and more than $150,000 in gross annual revenue. You could take out an advance between $2,500 and $250,000 and the interest you pay is typically based on a factor rate. CAN Capital also charges a $595 administrative fee for merchant cash advances.
Business line of credit from Credibly
Time in business required: At least six months
Credit score required: 560
Amount of funding available: Up to $250,000
A business line of credit provides funding on an as-needed basis up to a certain limit. You could draw from your credit line when you need funding and only pay interest on the amount you actually borrow. Once you repay that amount, the full credit balance becomes available to you again.
Credibly requires borrowers to have six months in business, a personal credit score of at least 560 and at least $50,000 in annual revenue. Credibly’s business line of credit is available up to $250,000 for qualified business owners.
Startup business funding: 5 alternatives to business loans
If you’re running a brand new business or have yet to launch, you may want to look outside of standard business financing programs that require operating history. Here are a few alternative funding options for startups that may not meet lenders’ time in business requirements.
Funding the business yourself, also known as bootstrapping, would require you to rely on money from your own savings or from friends and family to run the business. Self-funding would allow you retain full control of the business without having any debt hanging over your head. However, you could be putting your personal savings at risk. You may deplete your retirement savings, and you could face penalties if you borrow incorrectly from a retirement account.
Venture capital investors generally provide capital to startups and small businesses in exchange for an ownership share and an active role in the company. The funds venture capitalists offer are not loans, so you don’t have to pay back the money, but you would relinquish some control of your business. Note that venture capitalists tend to focus on companies that can generate fast, substantial returns on their investment.
Crowdfunding allows you to raise money from your family and friends or the general public. Kickstarter and GoFundMe are among the well-known crowdfunding platforms that are often used to raise capital. Crowdfunding can be a low-risk funding method because the people donating to your campaign aren’t investors, letting you retain control of your business. However, donors typically expect a benefit in return for their contribution, such as your product or service or some formal recognition. In addition, crowdfunding platforms may charge a fee for use of the service, and you may have trouble raising enough money for your needs.
Many small business grants are designed for existing companies, but there are programs designed to help new owners get their enterprises off the ground, notably the Small Business Development Center (SBDC). SBDCs don’t typically provide grants or other types of funding, but they might be able to help you find resources that do. Best of all, their counseling, assistance and training are free.
Business credit cards
New business owners may initially rely on a business credit card to cover expenses, as they’re typically easy to obtain; keep in mind, though, that your credit limit may be low until you build up substantial business credit and operating history. Business credit cards may come with high fees (APR, penalty APR late fees), so it’s important to spend responsibly and keep your balance low. You should also be sure to keep your personal and business expenses separate when using multiple credit cards.
How to get a startup business loan
Once you’ve decided to seek business financing for your startup costs, the first step toward getting a loan would be deciding how much money you need to borrow. Set specific goals for the funding, such as making a real estate purchase or establishing a marketing plan.
Then, shop around to find a lender that fits your business. Make sure you understand the lender’s minimum requirements before applying, such as minimum time in business, annual revenue and personal credit score.
When you’re ready to apply for a small business loan, you could expect to see one or more of the following application requirements:
- A copy of your business plan
- Business and personal bank account statements
- Business and personal tax returns
- Proof of business registration and licenses
- Employer identification number
- Financial statements, such as profit and loss, cash flow and balance sheet
- Collateral (for a secured loan)
Some lenders may allow you to prequalify for funding after conducting a soft credit inquiry to view your financial history. If you move forward with a loan offer, the lender would then conduct a hard credit pull, which could negatively impact your credit score (keep this in mind if you plan to apply for a business loan from multiple lenders). Once you receive an offer that you feel comfortable with, you’ll be on your way to securing funding to boost the growth of your startup.
Startup business loans: Pros and cons
If you’re considering applying for financing to fund your startup, here are a few potential benefits and drawbacks of small business startup loans that you may want to keep in mind.
Taking on some form of debt would allow you to preserve your personal savings.
You may get immediate access to a large amount of funding to quickly grow the business.
If you don’t sell any part of your startup to investors, you can keep full control of the business.
Most business lenders require some time in business, making business loans elusive for brand-new startups.
Repaying business debt may be difficult if your startup does not yet generate stable revenue.
Online loans, which startups may be more likely to get, often come with high interest rates and fees.
Startup business loans FAQs
How can I get a startup business loan?
You can apply online for a startup business loan. Online lenders are more likely than banks to lend to new businesses. Although, you would likely need to be in operation for at least three months to qualify for financing.
Do banks loan to startups?
Banks may lend to startups that demonstrate the ability to repay debt. Offering high-value collateral and having a two-month financial cushion could reduce your risk as a borrower while increasing your chances of approval.
Is it hard to get a startup business loan?
It may be hard for a startup to get a business loan without a few months of operating history. Brand-new businesses could consider alternatives to startup business loans, such as self-funding, crowdfunding or business grants.
Can I get a business loan with no money?
No, you typically need some business income to qualify for a business loan. Lenders often want to see cash-flow projections that show how the business would repay a loan. And some loans may require a down payment of up to 25%.
How can I get a startup business loan without collateral?
Your startup may qualify for an unsecured business loan, which would not require you to pledge specific assets like collateral. However, unsecured loans often require a personal guarantee that would make you personally responsible for repaying the debt. Interest rates may also be high without collateral to secure the loan.