If you have just established your business, you need adequate cash flow to build and grow your business. However, since you have just started out, it might seem difficult to acquire a reliable source of funding for your business. However, there are various financial providers that offer business startup loans to small businesses. The following are some common business startup loans that you can obtain –
Government Startup Loans
The government provides budding entrepreneurs with business startup loans. This type of loan is an excellent option as they don’t require you to incur any application fees or early repayment fees. Additionally, your business will also receive mentoring and support services that can be valuable to startup businesses.
Bank loans are among the most common business financing forms, but they are harnessed typically by large, established businesses as opposed to startups. This is because banks typically have stringent and selective screening criteria. Getting business startup loans from banks can be a strenuous process that might include presenting an extensive business plan, financial stability, and a ton of documentation. Furthermore, you might also have to give collateral as they are generally secured business loans. While the screening criteria are complex, bank loans offer fixed interest rates and monthly installments.
An equipment loan is a specific type of business startup loan that can be highly valuable to entrepreneurs as they can acquire the required equipment faster. If you are in dire need of equipment for your business, then you can apply for equipment loans on certain items and pay monthly installment instead of paying for everything altogether. These loans are secured as the equipment you buy acts as the collateral.
Business Line Credit
A business line of credit is an efficient source to acquire a business startup loan. In this type of loan, you only loan the amount that you require and further repay what you have used. This facilitates in maintaining proper working capital and cash flow even on slow business periods. A business line of credit is unsecured loans; therefore, there are no requirements of collateral.
While a new concept in the financing realm, online lenders have gained tremendous traction. There are many forms of online lending including –
Crowdfunding is a popular type of financial source for small businesses. Over the years, crowdfunding has become very popular in the UK. In fact, it has surpassed private equity investments. Essentially, there are two types of crowdfunding including –
- Reward-based crowdfunding – This type of crowdfunding platform allows people to invest in a project or company in return for rewards.
- Equity-based crowdfunding – This type of crowdfunding allows individuals to invest in companies or projects in exchange for shares in that particular company.
- Peer-to-Peer Lending
Peer-to-Peer lending is designed for eliminating the middleman from the borrowing process. It enables you to borrow money from lenders directly via the internet. It has paved the way for opportunities for business startup loans. This is because, even if you are denied a loan from a bank, you can rely on online lending. However, the interest rate in this form of lending is higher than other forms of business startup loans.
Credit Card Loan
You can use a credit card as your source of financing, granted that you own one or eligible to procure one. It is a risky way to fund your business, and you must be sure that you have adequate money to repay when the time comes. If you are getting a credit card, ensure that it comes with low-interest rates; otherwise, your monthly installments will quickly add up to a sum that will become beyond what you can afford.
An asset financing allows you to borrow money against an asset your own. If you don’t meet the predetermined obligation, the asset will be taken over by the bank. Assets that are eligible for asset loan include inventory, equipment, premises, accounts receivables. While interests are often high, asset-based finance can be highly valuable for startups that are in desperate need for money. Moreover, if your company is equipped with valuable property, then it would be easier to acquire asset financing.
A family loan is one of the simplest forms of business startup loans that you can acquire. Considering that you have a supportive family who is willing to lend you money, family loans can be a reliable source of funding. Your family members are likely to trust you more as opposed to banks, and they would offer you money at a lower interest rate. However, it is always risky to mix business and family, so ensure that you compare the pros and cons before asking for the money.
Important Basics Associated with Business Startup Loans
- Annual Percentage Rate or APR entails the borrowing costs over the year. It is an important factor used to compare the loan offering between lenders. APR is the rate used for borrowing that includes borrowing costs and all other related fees. The lower the APR, you will have to pay back.
- For businesses that are high risk and high value, secured loans are a better option. While secured loans can be taken out for any amount, lenders set the value to maximum Euro 500,000. This type of loan is secured against an asset. Low-interest rate is one of the biggest advantages of secured loans.
- An unsecured loan is more accessible but offers a lesser amount of loan. It allows you to take out money with an agreement for regular repayments. Unsecured loans come with stringent repayment terms.
- Refinancing your asset is the fastest way to raise money for your startup. Additionally, it is completely tax-deductible.
The Bottom Line
Starting a business requires you to invest a considerable amount of money. Luckily there are plenty of business startup loan options available for you to start your dream project. However, ensure that you consider the pros and cons associated with each lending option, execute a necessary evaluation, before making the final decision. The time you initially spend on choosing the ideal business startup loans will help you protect your fund and business in the future.