Startup business loans are a great way for entrepreneurs to get their venture off the ground. But before borrowing money, it’s essential to weigh various factors.
Startups have access to a range of financing options, such as corporate credit cards, asset-based funding, term loans and business lines of credit. If your business cannot meet traditional loan criteria, crowdfunding and equity investing may be better suited for your startup needs.
1. Evaluate Your Needs
Finding the ideal startup business loans is essential for your company’s success. Take into account your individual requirements, the type of financing that best meets those requirements, as well as any other available financial solutions you may have access to.
Before lenders make a determination about whether to grant you a loan or not, they require information about your startup business. This may include an extensive business plan, personal and business bank statements, as well as any other documents that could aid them in assessing your creditworthiness.
Due diligence is a comprehensive investigation of your business’ financial records that takes time away from other commitments. To make the most of this time, it’s essential that you prepare your startup as thoroughly as possible for this lengthy procedure.
2. Prepare Your Startup for Due Diligence
You’ve made your pitch, signed a term sheet and are nearly ready to secure the funds needed for your business venture. But before investors hand over any cash, they’ll want to understand every detail of your venture.
Due diligence is a process that requires you to document and collect evidence for all claims made by your startup. While it may be tedious, it can help you close a funding round and earn the trust of investors.
Your business must answer questions about its customer contracts, marketing strategies and international expansion plans. It is essential that this data be gathered and organized in one place before potential investors inquire.
Use a diligence checklist like the one provided to ensure you have everything necessary before any requests for information come your way. Alternatively, create an online data room to store all confidential documents securely until they’re needed.
3. Compare Lenders
Depending on your requirements and credit history, you may be eligible for traditional business loans, small-business grants, crowdfunding initiatives or other forms of funding.
Lenders typically assess loan applications based on both personal and business credit scores. They may also request financial records and tax returns from the startup owner and any partners they may have.
Some lenders may even require a comprehensive business plan outlining how the money will be utilized. This can be especially crucial for newly founded companies.
Comparing lenders online requires requesting credit reports and personal credit scores. You may also use a lending platform, such as Credible, to compare rates from multiple lenders simultaneously.
4. Borrowing Isn’t Always the Best Idea
One of the greatest obstacles faced by startup entrepreneurs is finding financing. This could involve taking out personal loans, tapping into savings accounts or borrowing against one’s 401(k).
Startups are businesses created by a team of individuals with one mission in mind: to revolutionize the world while satisfying a market need and creating value for shareholders in the long run. This requires raising capital from various sources such as friends, family and private equity investors (see: fintech).
A startup loan in the form of a credit card is an excellent starting point, but it may not be the most suitable solution for launching your venture. When selecting a lender for your venture, consider an angel investor, microfinance institution or small business lending company; successful lenders take into account factors like size, structure and financial strength before making their decision on whether or not to extend you an offer.