As the saying goes, ‘money makes the world go around’. While this is true for every business, it is even more true for a startup. After all, this is the time when your newborn business is most vulnerable. Maybe you have a couple of customers, but it is probably not enough. Odd are that you are undercapitalized as well. This means that you will need to find cash from your business from anywhere possible – including between the seat cushions.
One such option is a loan. But what can you do when your business is brand new? The Harvard Business school found that loans to small businesses declined from 50 percent in 1995 to roughly 30 percent in 2012. As such, banks are not the best choice. However, you don’t need to worry as here is a list of options on how to get a loan for your startup.
SBA stands for Small Business Administration and this government organization has been tasked with helping millions of small businesses get the funding they need. One program the SBA offers for startups is a microloan program, which offers loans of up to $50,000 for small businesses and even non-profit childcare centers.
If this program does not fit your needs, then you can also check out the SBA’s 7(a) loan program. While the loan application process is tedious, startups are eligible to apply. 7(a) loans work best when your startup is a capital-intensive business that has physical assets or real estate which can be used as collateral. However, don’t expect these loans to get approved quickly as the process can take six months or longer.
Friends and Family
Some things will never change and one of them is going to friends and family when you are looking to raise funds for your startup. That being said, borrowing money from friends or family can be difficult.
For starters, you have will to deal with the fallout if things don’t turn out as planned. As such, only borrow from friend and family if you have a clear plan to repay the funds. If you don’t then consider other, less personal, options or risk spending the holidays alone.
In addition to having a plan to pay back the funds, you will also want to have a plan in case your friends or family say no. This way feelings are not hurt if a close relative decides they don’t want to make a loan. Sometimes the reason has nothing to do with you, so it is best to just respect their decision and move on.
As mentioned, banks are no longer the loan option of choice for small businesses and this includes startups. So, unless you are willing to pledge both business asset and personal assets don’t expect much help from banks.
However, one category which has opened up in recent years are alternative lenders who specialize in financing struggling small businesses and startups. Such loans can include microloans, working capital loans, inventory loans, or even revolving credit lines.
Besides the different loans options, some alternative finance companies have flexible repayment options. This is not to say that you won’t need to repay the loan. But instead of focusing on a monthly repayment schedule, some lenders will take a percentage of daily or weekly sales.
Crowdfunding allows you to use the crowd as a financing option by asking everyone to pitch in what they can to help you. However, running a campaign is time-consuming. In the end, the best crowdfunding campaigns find a way to tie in your customers. Examples include restaurants which have successfully used the combination of crowdfunding and discounts to get started or even move to a new location.
This can be tricky as you are basically risking your personal credit for your business. However, there are times when you simply don’t have any options. A couple of things to know about using personal credit for your business is that these loans tend to carry high interest rates – especially if you have bad credit. In addition, the loans will go on your personal credit report and this can have a negative impact, even if you can pay the loan back. As such, these loans should be considered in emergency situations after you have exhausted all other options.