How To Get Startup Business Loans
If you’ve created an excellent concept for a business, you’re probably wondering how you will get the money you need to finance it. It can be difficult to get financing for a brand-new company, especially if you don’t have much of a track record to back you up. In this article, we will discuss the various options for startup business loans, help you understand the requirements and weigh the pros and cons. Read on to learn more.
Traditional Lenders Can Be Demanding
If you’re just getting your feet wet in the business world, you probably don’t have the background and requirements necessary to successfully get a loan from a traditional investor or lender. Options for raising money may include selling things that belong to you, taking out a second mortgage or opening a home equity loan, using your credit cards, borrowing against your retirement plan or life insurance policy and/or asking your friends and relations to help you out.
It’s important to understand that all of these choices include an element of risk. You could lose your investment, your collateral and even your friends. Be that as it may, taking out a small business loan may be a risk that you’ll have to take if you want to move forward in the world. Just be sure to take your time and make mindful and well-thought-out choices every step of the way.
A Winning Business Plan May Fund Itself!
Another possibility for financing your business is called bootstrapping. When your business is bootstrapped, it means that you’ve been fortunate enough or skilled enough to hit upon a concept that is instantly popular. When this happens, you begin making money right away and are able to finance yourself. It goes without saying that this sort of situation seldom arises, but it is not unheard of. If your product or service is popular enough, you may very well be able to pull your business up by its bootstraps.
The Small Business Administration (SBA) Provides Tools, Advice & Guidance For Budding Entrepreneurs
No matter how you finance your business, you need to start off with a strong and sensible business plan. Review your concept with people whose advice and information you trust. Seek out experts and entrepreneurs who have done what you want to do. Ask for advice, listen well and follow wise words.
One of the best places you can go to get up-to-the-minute information, mentorship and assistance in obtaining small business start up loans is the SBA. This United States government agency was founded in 1953. Since that time, it has helped millions of small businesses get started by providing counseling services, helping with contracts, delivering loans and loan guarantees and providing a wide variety of services.
The SBA provides access to capital to small businesses through numerous financing options. Funding amounts range in scope from micro-lending to venture capital investment.
Requirements: Applying For A Startup Business Loan
If you are going through the SBA for your startup capital, your credit score may not be of tremendous importance. If you’re going through a bank, it will be. Regardless of how you get your money, it’s a good idea to remain cognizant of your credit score and make sure that your credit score records are always up-to-date and correct. Check with credit reporting agencies to get a copy of your credit score and review it to be certain that you understand it and are in agreement with it.
Applying for a business loan is something like applying for a job. You want to show the potential lender that you have enough experience to make a go of your proposed business. In addition to a well laid out business plan, you should also have a current and accurate curriculum vitae on hand. You may never need to present this to a potential lender, but having your own qualifications for the task well organized and close at hand will make it easier for you to present yourself well.
Take stock of your assets. Knowing what you have on hand will help you determine what you need. Additionally, you need to be able to quickly present any assets that you might be able to put up as collateral or security against a loan. Be advised that both the SBA and traditional lenders want to know what you have that is of value!
Generate as much cash as you can contribute to your down payment. A larger down payment will help you get more financing and better terms. Indeed, if you can come up with a quarter of the money that you need it will help broaden your choice in lenders. There are some banks and other types of traditional lenders that will not talk with you at all unless you have a good-sized down payment on hand.
Remember that when you approach banks for funding for startup business loans, you will want to present yourself and your idea in the best light possible. Before a bank will take a risk with you, they need to know that you have a sound business plan in place; you are competent enough and experienced enough to run the business and that you are serious enough about this venture to invest a sizable down payment.
Having a strong credit history will definitely help you get a good small business loan. If all else fails, you can probably get funding by agreeing to a cosigned loan. Remember that when you have a friend, relative, or colleague co-sign a loan with you it is imperative that you honor the terms of the loan. Otherwise, you will damage your cosigner’s credit rating, and you may destroy your relationship with your cosigner.
Securing Funds For Your Small Business Through The SBA
One of the best things about going through the SBA is that information and products that are available are always up-to-the-minute. You can be sure of being offered the best and latest products and receiving the most recent and accurate information. It’s important that you understand that SBA loans are not money borrowed directly from the SBA. The work of the SBA is to guarantee small business loans. Traditional banks are the underwriters of these loans. When you go through the SBA, the loan process is quicker because they use SBA preferred lender banks. The processing and prequalification are all done in-house.
On the downside, when you go through the SBA you may find that the fees are quite high; however, you can borrow money from the SBA to pay your fees! The amount of fees and the maximum amount you can borrow changes from year to year. At the end of September every year, the government fiscal budget ends. This is when the new terms and conditions for SBA loans are issued. If you are thinking of applying for SBA assistance on or around September 30, you might be wise to get all your paperwork in order prior to that date and submit it. Conditions might not be as favorable for you on October 1. On the other hand, they might be better!
When you borrow money through the SBA, you will definitely want to demonstrate that you have a strong background in the business you wish to start. Additionally, you will be required to guarantee the loan amount. If you default on the loan, you could literally lose everything.
Seeking Financing For Your Start Up Business
All-in-all, when looking for a business startup loan it is wise to scout out all your options and weigh them carefully.
How much you want, what kind of credit rating you have and your ability to pay are strong factors in determining which source is best for you. One of the better things about borrowing through the SBA is that you can get a lot of support and assistance in understanding and complying with your loan terms.
On the other hand, if you don’t need a very large amount of startup capital, a personal loan from a friend, use of your credit cards or simply selling your stuff may be better options because the risk is less, and you will maintain your autonomy.