Starting up can make finding business financing challenging; startups often have limited financial records and credit histories.
There are various avenues available to new companies looking for funding options – grants, crowdfunding and business credit cards may all offer assistance – however these may not always be appropriate solutions for start-up companies.
How much can I borrow?
How much you can borrow for a startup business is determined by many variables, with lenders often offering higher loan amounts to those with good to excellent personal credit and who have been in operation for at least several years.
Lenders take into account a business’s industry when deciding how much to lend. If it involves risk or unsteady cash flows, lenders may turn down your application or provide less funds than requested.
A down payment helps offset your lender’s risk and may make you eligible for larger loan amounts. Furthermore, it shows your dedication and makes repayment easier.
When selecting a lender, ensure they offer competitive interest rates and require no minimum credit score requirement. Our business loan calculator allows you to estimate payments with different loan amounts, repayment terms and interest rates.
Lenders and loan offers
Startup business loans can be obtained from numerous lenders, including small banks and credit unions, online lenders, nonprofit organizations, and crowdfunding platforms. Each source may have specific criteria and qualifications before you make an application for funding. Do your research before applying for one!
Startup business loans often require personal guarantees and higher interest rates than what more established companies would typically pay for other forms of financing. They may also require collateral as security for the loan — such as real estate, inventory or equipment that you pledge as security against it — such as real estate, accounts receivable or other valuable assets.
Alternative sources of financing for startups may include startup business lines of credit and business credit cards. While less commonly used than loans for business startups, these alternatives allow you to separate personal finances from business expenses while building credit that could eventually result in better loan terms in the future.
Due diligence
When applying for startup business loans, investors will want to know whether your product or service can scale to meet demand, whether there are enough units being produced to justify production costs and whether your venture is financially sustainable. You should be honest in answering their inquiries about these subjects.
A venture capital or angel investor will inspect your business to ensure compliance with regulations. They’ll also look closely at intellectual property to see whether competitors can easily duplicate or challenge its inventions.
Due diligence can be an exhaustive and time-consuming process, but its results could make the investment worthwhile. Typically, due diligence takes 45 to 60 days for individual buyers but can extend up to 90 days when dealing with private equity groups or strategic buyers.
DocSend Spaces provides powerful document storage technology designed to make due diligence more manageable and efficient. It offers advanced features designed to streamline this process for smooth operations.
Negotiation
When applying for startup business loans, negotiating is key. Doing this well requires clearly and effectively presenting your business plan while taking time to understand the lender’s concerns and develop a comprehensive solution.
One common pitfall of negotiation is to focus on “fixing the pie.” This approach assumes that one party receives more of a fixed amount than another and limits creative solutions that meet both parties’ needs.
Alternative approaches to negotiation include taking an integrative view. Here, each party tries to expand the pie by finding ways to combine their goals into a greater whole so that all can win in the end.
