Startups are emerging rapidly and are marking their space in the business world. According to the Small Business Administration (SBA), there are 29.6 million small businesses within the U.S. as per 2018 reports. A startup’s initial financial requirements can include capital, purchase of machinery, equipment, personnel, etc. It is difficult to get a loan for a startup as loan calls for credibility. You may have a brilliant idea and a plan but not many financial institutions agree to grant a loan for a startup, fearing they might not recover it as there is no credit history available for them to rely on.
However, there are certain institutions that are willing to take the risk and help startups financially.
Let us first get into the procedure of how to be eligible for a startup loan approval:
Plan It Out Well
Before you apply for a loan, have a business plan ready which will explain all your goals, expenditures, risks, alternatives, detailed product description, etc. Your business plans play a key role in your loan approval as that is what will convince the lender that you’ll make a profit and his loan will be recovered. Mention about your expected income and how your business idea differs from others and what impact it will have on society.
Check Your Credit Score
It is very important to check credit score as having a good one will make it easier to get your loan approved. It will also qualify you for a lower interest rate. Get access to your credit report and make sure it’s in order with no errors. A credit score of about 700 is good enough to make you eligible for the loan.
Watch Out For Other Alternatives Too
Look for some commercial banks as well, don’t just be dependent on large, national banks for your funding. Sometimes smaller banks approve startup loans instead of larger ones. Also, a credit union can be your another option for loan approval.
Your Assets Are Worthy
In some cases, lenders or financial institutions approve to grant a loan by seeing your assets that could be used to repay the loan. Establish some funds through your assets to repay some amount of the loan. The SBA lists a 30 percent startup equity as the general requirement lenders. This means if you need $100,000 to start your business, have $30,000 before you apply for a loan.
According to SBA, the documents that you’ll need for loan approval are:
- Driver’s license
- Credit score
- Bank Account Number
- Business Plan
- Equipment quote
Here’s a list of 5 best ways to get a startup loan and go ahead with your new venture:
SBA Startup Loans
The Small Business Administration (SBA), is a financial institution that helps startups or small businesses financially. SBA offers microloans, which provide $500 to $50K in capital to small businesses. The average SBA microloan is $13K. SBA does not provide loan directly, its an intermediary body that partners with lenders and banks which agree to provide you the loan as per SBA guidelines. Also, it has certain investment programs such as Small Business Investment Company (SBIC), Small Business Innovation Research (SBIR) Program and Small Business Technology Transfer (STTR) Program.
Crowdfunding can be helpful
Crowdfunding gets you to fund from a group who are willing to invest in your business and do not necessarily expect you to repay this loan. Online crowdfunding platforms like Kickstart and IndieGogo, provide loans to people by setting a target through a campaign that they aim to achieve. Crowdfunders do no expect any ownership in the business or repay, they only expect perks or free gift or a “thank you”.
Business Credit Cards
Business credit cards are a great way of funding your startup. They let you save money on expenses like hotel stay, travel, etc and let you spend on your business. They are easy to apply for and have zero introductory rates. They also offer certain perks like welcome bonuses, sustained rewards. The interest amount is only to be paid on the balance you are carrying. You cannot just use the card to borrow cash but you can also use it for making purchases for your business. Business card issuers will look at your personal credit score to issue you a business credit card, so make sure you have good credit score there. A personal credit score of over 550 should be good enough to make you eligible for a business credit card. Business cards like Chase’s Ink Business Preferred Credit Card require a minimum credit score of 700 and offer 80,000 welcome points after $5,000 in the first 3 months. You can also redeem points on traveling, cashback, gift cards, etc. The points don’t expire as long as your account is open.
Another good option is Capital One’s Spark Cash for Business Card which requires a credit score of a minimum 660 and gets 2% cashback on your business purchases. The card gives a Welcome offer of $500 after you spend $4,500 in the first 3 months. Other options are The Blue Business Plus Credit Card from American Express, Chase’s Ink Business Cash Credit Card, Hilton Honors American Express Business Card.
Rollover Business Startups (ROBS)
ROBS let you invest from your retirement account without paying early withdrawal penalties. This way there are no loan payments and no debts to be paid at the beginning of the business. The money that you’ll transfer from your retirement account to your new business account will be used to buy stock and once those stocks are sold, you’ll have the capital to start your business.
Equipment Financing is another option
If you have enough money to pay the utility bill but need some funds to buy equipment for your business to take off then firms like Wells Fargo and Direct Capital can help you with Equipment financing. You can borrow up to $250,000 for up to six years and receive your money within 24 hours.
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