Loans

How and Where to Get Startup Business Loans

Use small business startup loans to jump-start your business.
How and Where to Get Startup Business Loans
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This story originally appeared on GOBankingRates

If you have a talent or an idea and want to turn it into a business, you’ll most likely need to secure a loan to get started. Combining traditional and alternative lending is the best way to obtain the funds needed to turn your dream into a reality. Read on to discover where to look for startup loans and how to secure the business loans to get your company up and running in no time.

Related: 3 Must-Know Tips from Real Estate Insiders

Where to get startup loans

According to the Small Business Administration (SBA), there are 29.6 million small businesses within the U.S. It says small businesses make up 99.9 percent of all businesses within the country. By starting a small business, you might be contributing positively to the economy. Here are 10 different ways you can get a loan to start your new business.

1. SBA startup loans

The SBA doesn’t give out loans directly, but it does partner with lending companies that agree to abide by the SBA’s set guidelines. Because these guidelines are designed to reduce the risks for lenders, it becomes easier for individuals to qualify and get a startup loan.

In addition to competitive loan rates and lower down payment requirements, the SBA provides counseling and educational information that could help your business succeed.

2. Nonprofit microloans

Nonprofit microloans are another excellent option for funding a startup. Fundera, the small business lending marketplace, reports that microloans typically fall within the $500 and $50,000 range and are available as short-term loans with lower interest rates.

Depending on the company you decide to use for your micro-loan, you might also get additional support beyond the funding. For example, Accion offers a financial literacy program and some business training along with its loans. Kiva issues interest-free loans of up to $10,000, as well as free marketing support and aid in building your business credit.

3. Equity crowdfunding

Equity crowdfunding is specifically designed to aid startups or businesses that are in the early stages of their development. With equity crowdfunding, you agree to give the investors shares in your company in exchange for funds.

You set the terms, and if the investors look through your portfolio and like what they see, you can reach an agreement. With this method, investors take on more risk, as they would not be able to recoup their money if your business isn’t successful.

4. Business credit cards for startups

According to CreditCards.com, 80 percent of businesses that apply for credit cards receive an approval letter. That makes business credit cards an excellent and attainable resource for startups. Not only can cardholders request a cash advance if needed, but the card itself can be used to purchase office equipment, inventory and advertising expenses.

Business owners should look for cards with a low to 0 percent introductory APR, as well as cards with an attached rewards program, such as airline miles if the business requires you to travel or cash back if the extra money would be helpful.

Related: 12 Times You Should and Shouldn't Invest in Your Favorite Brands

5. Rollover business startup

People who have $50,000 in their retirement funds can take advantage of a rollover for business startup (ROBS). This option works well for business owners who wish to avoid debt when beginning their companies.

To take advantage of this, you’ll need an accountant and an attorney to help you with the necessary paperwork to establish your corporation and then transfer the funds from your personal retirement account to your new company’s 401k. The money is then used to buy stock in the company. When the stock is sold, you’ll have the money you need to start your business.

6. Personal loans for business

You might not be aware that you can use a personal loan for business startups, but this is definitely an option. If you have a credit score of 580 or higher, the general qualification reported by Fundera, and you understand that the transaction directly affects your personal credit, you can apply. You’ll receive your funds in as little as 24 hours and be able to use the money as you see fit, such as to secure an office building or purchase a delivery truck. The downside is that a personal loan makes it more difficult to keep business finances separate from personal finances and that personal loans are often limited to around $40,000.

7. Grants

Grants are a preferred method of funding for startups because they don’t have to be paid back. Of course, some grants come with stipulations that business owners must agree to follow.

The grant could be designed to provide technology to get your business organized, or it might specify that the funds are for stocking the shelves of your store. The SBA does not offer grants for business startups, but there are other organizations that do.

8. Home equity loan

Entrepreneurs who don’t have a business history or a credit score in the excellent range might find it easier to obtain a home equity loan rather than a small business or personal loan. There is a risk of losing your home if your business doesn’t earn enough to repay the home equity loan, but the benefits of going this route include lower interest rates and a quicker approval process.

9. Equipment financing

Perhaps you have the money to pay rent and utilities for an office space, but you could use a little help with buying the appropriate equipment to make your business run smoothly. If this is the case, equipment financing is the way to go.

Companies like Wells Fargo and Direct Capital offer this type of loan. Depending on the financial institution, you might be able to borrow up to $250,000 for a period of up to six years and receive your money within 24 hours.

10. Friends and family

Don’t leave family and friends out as a potential loan source. It is this group that is often the most supportive, and if they have the money, they might be willing to loan you funds with a generous interest rate and repayment plan.

The best part is you don’t have to worry about credit scores or putting down collateral. You will need to put the terms in writing so that both parties are on the same page and so that the loan is legally binding if legal mediation is needed.

How to get startup loans

Startup loans are competitive, with Biz2Credit reporting big banks approve only 24 percent of their business loan applications and small banks accept 49 percent. If you want to increase your odds of securing a startup loan, follow these tips.

Related: 15 Money Habits That Are Making Millennials Rich

1. Have a business plan

When applying for a loan, you’ll need a detailed business plan that shows the lender you have carefully considered all the startup expenses associated with your business and researched the product or service demand to ensure you’ll make a profit.

This plan must be done right if you are going to pitch your business to a lender when your business hasn’t even launched yet. In addition to your expenses and expected income, include a projected repayment plan that corresponds with your expected growth. Don’t forget to include what makes your business different from others and exactly how it will have an impact on the community or others it caters to.

2. Have a good credit score

You’ll be more likely to land a business loan when you have a good credit score. A good credit score also qualifies you for a lower interest rate, which means you’ll have more money at your disposal to put into the day to day operations of your business. If your credit score could use some improvement, Experian, one of the rating agencies, suggests checking your credit report and having any inaccuracies corrected, limiting your outstanding debt and avoiding any new lines of credit that you really don’t need.

3. Have some funds ready

Banks and other financial institutions will look at your assets when deciding whether to approve or deny your business loan. Establishing funds that you can use to pay a portion of the startup costs to get your business up and running will not only appeal to lenders, but it will also save you money on interest in the long run, as you’ll be able to take out a smaller loan. The SBA lists a 30 percent startup equity as the general requirement lenders look for. This means if it will cost $100,000 to get your company off the ground, you should have $30,000 set aside before you apply for the loan.

(By Alice Bodine) 

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