Funding a new business can be challenging, particularly when you’re just starting out. But there are several ways to secure startup business loans tailored to your requirements.
Lenders often set minimum time requirements and annual revenue requirements that your startup must meet in order to be approved for a loan. These specifications may differ from lender to lender.
Online Lenders
If you are a small business owner in need of startup business loans, there are several online lenders who provide these types of financing. These lenders are convenient and usually provide quick approvals. Furthermore, they often work with borrowers with poor credit or low annual revenue.
Loan application processes vary between lenders, but usually involve online applications, phone calls or in-person visits to a bank branch office. Lenders usually take into account an applicant’s personal credit score, business financials and debt-to-income ratio when deciding whether they will provide them with a loan.
Startup businesses often require additional capital to purchase equipment or expand their company. Popular forms of funding include term loans, business lines of credit, merchant cash advances, invoice factoring and other alternative small business loans.
Personal Loans
Personal loans are one of the most popular funding sources for new small business owners. Generally, they’re easier to qualify for than traditional business loans.
They offer lower annual percentage rates than some other forms of business financing, though you will need a good personal credit score and steady income to qualify.
When evaluating different startup business loan options, it’s essential to be aware of the minimum time in business requirement and maximum borrowing amount. Generally, startups can obtain a loan if they have six or more months of business history and $10,000 or more in monthly revenue.
Furthermore, online lenders like BlueVine and Fundbox offer startup business lines of credit to businesses that have only been operating for six or three months. These can be an ideal solution for businesses with bad credit that need funding quickly but don’t want to submit collateral.
Microlenders
Microlenders typically provide small loans for startup businesses, usually in amounts of $50,000 or less. They’re usually provided by nonprofit organizations with a mission to assist disadvantaged populations.
Women, minorities, veterans, freelancers and other underserved entrepreneurs with uncertain finances or no business credit are targeted by these lenders. Furthermore, they provide other benefits like mentoring and training that can assist you in starting or growing your business.
Microlenders typically offer lower interest rates than other sources of financing, making them an attractive option for new startups that need a small amount of cash but lack an established personal or business credit history. Furthermore, applying for microlending is simpler than getting a bank loan or other traditional forms of business financing.
Traditional Lenders
In addition to online lending options, traditional banks and community credit unions also provide startup business loans. These organizations provide a range of business financing products like term loans, lines of credit, equipment financing and invoice factoring.
Traditional banks usually demand collateral from their borrowers in order to reduce the risk of loan default. This collateral takes the form of assets that the bank can repossess and sell if you fail to fulfill your debt obligations.
Alternative lenders usually don’t require this type of collateral and often have simpler application processes than banks. Some even provide mobile apps to make the process faster and smoother for their customers.
The primary distinction in application processes between banks and alternative lenders is that banks require more paperwork, such as detailed business plans, financial data and investment information. By contrast, an alternative lender only needs a few documents – like your personal and business tax returns – to get started. Furthermore, most alternative lenders provide shorter repayment periods than traditional loans do.
