Ultimate Guide To The Best Loans For Startups In 2021 – Forbes Consultants
Getting a small business loan can be a challenge if your business doesn’t have an established track record. However, there are different types of startup loans that are suitable for a range of needs and qualifications.
Online loan with term
Fixed term loans are usually available through traditional banks and online lenders. However, banks may have higher skill requirements than online lenders. Fixed-term loans from online lenders typically have caps between $ 250,000 and $ 500,000, but newly established startups are unlikely to qualify for such large loan amounts. Additionally, online lenders typically require startups to be up and running for at least six months to a year before they can qualify.
Online loans can be a great way for startups that have at least six months under their belt to secure business funding to help their business grow. If your startup hasn’t been up and running for that time, consider the other seven startup corporate loans below.
The SBA microcredit program provides eligible business owners with access to startup loans up to $ 50,000. The terms are up to six years and the interest rates are usually between 8% and 13%, although this number varies depending on the lender.
Loans are issued by nonprofit lenders and other financial institutions and are backed by the SBA, making them generally more accessible to startups with limited financial records and credit history. And while they may not be helpful for all businesses, SBA micro-lenders are often more committed to funding startups in deprived areas and those owned by women and minorities.
Asset-based financing is a type of lender financing that is backed by a company’s valuable assets, including inventory, machinery and equipment, accounts receivable, and real estate. Secured finance is often associated with more flexible credit standards as they pose less risk to the lender. This makes it an excellent option for startups that cannot meet traditional business loan qualifications.
One of the most common types of asset-based lending, invoice factoring, involves selling outstanding invoices to a third party for a flat amount of cash – usually between 80 and 90% of the total invoice amount. This way, startups can be provided with working capital quickly and without having to demonstrate a strong creditworthiness or other stringent credit requirements.
Personal loans for business
Startup founders can also benefit from taking out a personal loan instead of a traditional business loan. In particular, personal loans are easier to qualify for a new business owner than a business loan – especially for startups with limited or nonexistent business history.
Additionally, the application and approval process for some lenders may be less stringent than for a business loan. Startup owners may also have access to lower annual percentages (APRs) than are available on some corporate loans, although the available credit limits are typically lower.
Borrowers who finance their startups with personal loans are personally liable to repay their debts. Nevertheless, most lenders pay attention to the personal creditworthiness of an applicant when evaluating a start-up loan application, so startup founders are likely to be personally liable for a startup loan.
Be aware, however, that using personal loan funds for business operations also involves mixing personal and business assets, which can lead to accounting, tax, and / or legal issues. In addition, some private lenders prohibit the use of funds for business purposes.
Related: Best Personal Loans 2021
Business credit cards
Like personal credit cards, business credit cards offer revolving access to funds that can be used for everything from office furniture and supplies to legal fees, equipment, and major purchases.
The application and approval process is faster compared to traditional loans, and start-up owners are more likely to be approved based on their personal credit worthiness. In addition, business credit cards are unsecured so new business owners do not need to raise valuable collateral.
Business credit cards can be used as needed, and cardholders only pay interest on unpaid balances at the end of the billing cycle – typically every 30 days. This makes it a great option for monthly running costs and other expenses that can be paid off each month to avoid interest. Some cards also offer introductory 0% APRs that allow borrowers to shop interest-free for six months to two years.
Getting business financing as a startup with limited credit history and financial records can be difficult. Business owners who can’t qualify for a traditional business loan or some other method like a business credit card – or who only qualify for a small startup business loan – may want to borrow from friends or family.
Before agreeing to borrow money, startup owners should certify that they are comfortable having an essentially business relationship with them. This includes reviewing the business plan with the lender, discussing their role (or lack of role) in the business, and providing a written reminder of the terms of the loan. By making sure that all parties agree to the loan amount, repayment terms, interest rate, and other relevant factors, you can avoid conflict across the board.
When traditional lending tools aren’t an option and borrowing direct from friends and family feels too personal, crowdfunding can be a suitable alternative. Likewise, potential borrowers who cannot qualify for a business loan as a startup can use a crowdfunding platform such as Kickstarter or Indiegogo to access cash and cover operating costs.
First, choose an online fundraising platform, create an account and decide how much money you want to raise. After setting up a crowdfunding campaign, users can donate different amounts of money that are available after the campaign has ended.
Not only does this form of corporate finance require no qualification from a financial institution, but business owners also do not have to give donors start-up capital in exchange for funds. Likewise, the startup is not charged any interest or other lender fees
Because of the nature of crowdfunding, this strategy is best suited for startup owners who don’t need to raise a lot of cash and companies with creative or otherwise enticing offers. A thank you is not necessary, but campaigns can be more successful when startups attract donors with an exclusive product, service or souvenir gift.
Small Business Scholarships
A small business grant is money given to startups and other businesses to help them get on their feet and grow. Grants are offered by a number of agencies including state and local governments, the federal government, and business organizations. Unlike other startup funding methods like loans and credit cards, small business grants do not require repayment, and business owners are not charged any fees or interest.
However, this form of funding is extremely competitive and the applications are often rigorous and time-consuming. Many grants also focus on specific types of businesses, including those owned by women, minority groups, veterans, and immigrants. Therefore, in the time available, it can be difficult to find a suitable open grant, prepare an application and wait for the grant.