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Optimal Startup Business Loan Options – Deciding which startup financing option is right for you starts with asking some important questions, all of which are covered in this guide.
Startups have more funding options than ever, which can mean more ways to highlight which option is the best fit.
Optimal Startup Business Loan Options
In addition to the usual things to consider when looking for startup funding (how much money do you need, when do you need it, on what terms, etc.), you need to learn everything from financial technology and factoring to crowdfunding and 401k. . This process can be extremely difficult to say the least, but you will be better for it.
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The good news is that gaining this knowledge will put you one step closer to securing the funding you need to make your startup thrive. Use this flowchart to guide you to the startup funding that’s best for your business. Answer the questions honestly to see where you end up. Then click or scroll down to learn more about the best funding options for your startup.
Not too long ago, most startups had few business financing options outside of traditional banks, credit unions, individual investors, and the US Small Business Administration (SBA), and even those options weren’t available to all companies.
The Internet has changed everything, bringing online lenders, peer-to-peer (P2P) platforms, app-based banks, crowdfunding sites and expert business financing advisors, as well as near-instant access to credit card financing and bank loans.
For those who aren’t ready to embrace the brave new world of financial technology, there are plenty of traditional term loans, lines of credit and financing options available in all the usual places. But depending on your specific situation, you may want to explore alternative options that you can access from your laptop.
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SBA loans are only available to business owners who have been turned down for conventional small business loans. In addition, the SBA requires applicants to submit multiple years of financial statements and tax returns, which is simply not possible for new businesses. The SBA does not lend money itself, but acts as a guarantor for banks, credit unions and other lenders.
Bank term loans are a popular option for businesses needing to finance expansions, acquisitions or major investments. These loans usually have a fixed interest rate, a predetermined repayment date, and monthly or quarterly payments. They also tend to have strict approval standards and often require some type of collateral.
A line of credit, or LOC, often works more like a credit card than a traditional small business loan. Lines of credit have less stringent credit approval standards and do not require a one-time payment that must be repaid in monthly payments. Unsecured lines of credit require no collateral and are often used to cover business expenses. Secured lines of credit can be used to finance large business investments.
Startups that rely on equipment to operate often seek equipment financing to purchase, replace, or upgrade their machines. These funds are typically available without the credit and down payment requirements of traditional small business loans. Many small business equipment loans have fixed interest rates and a fixed term, so borrowers can make the same payment each month. Rental options are also possible.
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Many personal and business credit cards have an introductory offer of 0% APR, usually for 12 months, but sometimes longer. These cards work well if you have a large purchase that needs to be financed within the first year of business and you don’t want to use up your working capital on monthly interest. It is important that you fully understand all the terms and conditions so that you understand exactly how much it may cost you after the introductory period is over. The process of choosing and applying for the right credit card can be confusing for new business owners, but you can get expert advice from business finance advisors like Seek Business Capital.
Many startups obtain non-bank lines of credit from credit unions directly or through the SBA. Credit requirements are usually less stringent than traditional lenders. Similar to bank lines of credit, non-bank lines of credit can be secured or unsecured.
A growing number of startups struggling to get traditional bank loans are turning to alternative sources such as credit unions, fintech lenders and peer-to-peer platforms that connect borrowers and lenders. P2P fees and interest rates can be high, especially for startups with poor credit and low revenues. However, there are many options available, including companies you already know, such as PayPal.
Merchant Cash Advances (MCAs) are short-term financing options designed for small businesses that need a quick cash infusion. They usually act as deposits for future credit or debit card sales. Because MCAs are not subject to the same regulatory standards as traditional business loans, you can face high fees in the form of factoring rates if you’re not careful.
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Equipment finance loans are usually provided in lump sums to purchase or upgrade equipment needed to run a business. They work similarly to classic business loans in that interest rates, repayment terms, and payments are usually set.
The process of using a 401k to fund your startup is complex and requires several important legal steps. One thing you need to do is transfer the money to a company pension account, which will allow you to invest your funds in the business. If you don’t have enough experience, it’s best to hire a financial planner or third-party retirement plan administrator to make sure you take the right steps. Downside: You might have to pay a lot of money for their services.
Crowdfunding is a great way to reach thousands of potential investors or lenders, although you’ll need the right product, service and proposition to get people sending you money. For commercial purposes, you’ll want to use debt crowdfunding, where contributors act as lenders and are repaid in monthly payments; or equity crowdfunding, where investors get a stake in your company.
More than a few entrepreneurs have brought in family and friends for seed capital as investors or lenders. If you decide to go this route, it’s always a good idea to treat it like any other business transaction. Get everything in writing, lay out the terms in plain language, and make sure the loans you receive have sufficient repayment terms so they don’t turn into taxable gifts. It is also a good idea to ask your shareholders for advice and tell them about the profit potential of your business.
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When deciding which startup financing option is right for you, start by asking yourself some important questions, including:
The choice you ultimately make depends on your financial situation and needs. If you need a quick infusion of cash to get your business off the ground and start making a profit, then a merchant advance can work. If you already have a stable business and a decent credit score, consider an SBA or bank loan.
Before making a final decision, make sure you thoroughly research each option to find the right and best financing terms. All content here and elsewhere is for informational purposes only. The reader should seek professional advice before taking any legal or financial action.
An SBA startup loan is a loan overseen by the Small Business Administration, which is a government agency created to help small businesses either start a business or promote small business development. The purpose of the SBA loan program is to offer more competitive lending terms and interest rates to promote business development in the United States.
Small Business Loan
Key Points: The SBA offers a variety of loans that can help business owners get the financing they need without exorbitant interest rates. Some of these loans require collateral, while others do not. This largely depends on the amount of financing required and your credit profile. Whether you need a microloan for just a few thousand dollars or a loan for $5 million, the SBA has several options. The SBA even offers an express loan with a turnaround time of 36 hours. The best SBA loan options for a startup
This is the most popular type of SBA loan for a startup because it can help finance retail space and other business needs. SBA 7(a) loans will also help you refinance previous business debt and give you access to short-term and long-term working capital. The maximum loan amount you can take out is a whopping $5 million.
To be eligible for SBA 7(a) loans, you as a business must meet some basic requirements. You must:
An SBA microloan is exactly what it sounds like, a small loan offered by the SBA. You can only get up to $50,000, but the average microloan is around $13,000. Again, these loans can be used for a variety of purposes, including:
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Because SBA microloans are made by third-party lenders, eligibility requirements depend on those individual lenders. As long as you can prove that you are (or will be) a business owner, you will probably be able to claim. Just know that these loans can
