There are numerous loan options for a start-up business to consider. Some start-up owners consider the traditional bank loans, while others borrow money online instantly. While bank loans can be your first thought when exploring business loan options for your start-up, in reality, banks would most likely not grant you a credit facility because of the risk involved with new businesses like yours.
As a business in its initial stage of operations, with a limited client base and a goal to supply a particular public's demand, start-ups tend to run into many difficulties. One of the major challenges a founder will face is a lack of access to finance, and you must find a way to arrest this challenge if you want to succeed.
The Essence of Start-Up Business Loan
Start-up loans are financing available to businesses without a rooted financial account and credit history. Because of the complex and demanding qualifications surrounding a bank loan, small business loans are more accessible to start-up business owners.Entrepreneurs have been afforded platforms and loan bases that match their qualifications. As long as you meet the basic qualifications of small business loans, you can take your business to the next level.
Small Business Loan Options for Start-Up Business
Getting a small business loan can be challenging due to the uncertainties around start-ups. Before giving out loans, creditors focus on a business' experience and credit history.However, there are still a number of options that small businesses can access. Here’s a list of small business loan options that entrepreneurs can use.
1. Business Credit Cards
Business credit cards are just like personal credit cards; you can make purchases and balance transfers as long as you pay the money back at the agreed time. You can use your credit cards to purchase office furniture and equipment or pay for advertisements fee, legal fees, and more.Unlike other traditional loans, your credit scores and income are considered to qualify for business credit cards. Before applying for a business credit card, your credit score must be over 700+ to 750+. An excellent personal credit score improves your chance of being approved for a business credit card.
Crowdfunding describes the process of sharing your business aims and goals with people and hoping they will donate to your business. It doesn’t require any qualifications. You can market your business to potential customers through your campaign on crowdfunding platforms.To do this, choose a fundraising platform online — entrepreneurs can use platforms like Kickstarter and Indiegogo for their campaign and get access to cash. The good news is you can decide how much you want to raise. People interested in your business ideas can donate varying sums of money that you can withdraw after your campaign.A tip for a successful crowdfunding campaign is to offer your audience a 'thank you' gift - after all, they are donating to your business. You can also promote your crowdfunding campaign through social media platforms like Instagram, Twitter, Facebook, and even WhatsApp.
3. SBA Microloans
The Small Business Association approves and provides loans to intermediaries, usually non-profit lenders and community development financial institutions (CDFI), to lend to start-up businesses. A small business can get the maximum amount of $50,000, while the average loan amount available is $14,000.Interest may vary depending on the lender, but the general interest is between 8 to 13 percent. However, business owners must pay all SBA microloans back within six years.
4. Family and Friends
Acquiring a start-up loan can be challenging if you don’t have an established credit history and financial records. If obtaining a loan proves to be an arduous task, your best option is your friends and family. Your friends and family are your most trusted ally, and they’ve been with you from the start. You can make a request to them for investments in your business. They may even ask for a business plan. Provide it, but emphasize that you’re borrowing the money from them, and you'll most likely pay it back. Pitch your business to them to show them they'd have long-term benefits in the enterprise. It all depends on your plan. To market your business to your friends and family, think about what they would like. Business aside, everyone is selfish with their money. You can pitch your business to them based on their sentiments on ethics and other convictions.
Before obtaining a loan, it’s essential to have a concrete business plan that will yield profit in a few years. This will validate your business goals, and then you can easily access loans from the sources listed above to finance the venture.
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