Building a business from the ground up is a herculean task. A large number of small businesses start every year in the US. But, about 20% of these businesses go under after their first year and over 50% fail to cross the 5-year mark. Estimates say that over 30% of them fail due to a lack of proper financial planning and funding. Chances are that Small Business Startup Loans are just what you need for your business.

One of the toughest challenges a new small business must face is securing the capital necessary to support its initial growth. New small businesses are the primary source of fresh employment in the U.S. but are much more likely to face financial challenges like access to capital than larger firms.

The problem is startups often lack the business history and credit to secure favorable term loans through banks. If you find yourself in such a situation, you shouldn’t worry. There are specific small-business startup loans that will suit your needs.

In this article, we will understand about small business startup loans, options of business finance available to startups, and the basic requirements for startup loans.

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What is a Startup Loan?

One of the big challenges that startups face is an inability to qualify for funding because their company has no business credit or poor credit and no cash flow. Since many new businesses can’t qualify for small-business startup loans, their owners often rely on personal credit for funds.

Availing a personal loan in your name for your business can be risky. If your company fails and declares bankruptcy, you’ll still be personally responsible for repaying the loan. This could damage your personal credit and the lender could come after your personal assets.

A startup business loan is a type of business financing that helps with the financial and capital needs of a new business. Startup loan proceeds can go towards things like working capital, purchase of equipment, machinery, supplies, inventory, and the purchase or construction of real-estate.

Startup Loans can range anywhere between $5,000 to $150,000 and even more. If you’re trying to secure a loan close to or above $150,000, your lender might expect you to have a clear, well-thought business plan. You can get funding in as early as one to two weeks.

Now that you have some idea about small business startup loans, let us take a look at all the financing options available for your startup.

Small Business Startup Loan Options – Business Finance

1. Equipment Financing

Equipment financing is a loan that enables you to buy new equipment for your business by using the equipment itself as collateral.

Specifically designed to pay for the purchase of equipment and machinery, equipment loans are similar to conventional loans. Both have monthly repayment terms over a long period. You can, however, use the proceeds only to purchase equipment or machinery. The lending standards and requirements for equipment financing can be less strict. This is because your equipment will be the collateral for the loan. So, if you default, the bank has the right to seize your equipment to cover their losses.

There are quite a few advantages to using Equipment Financing:

  • You can get the latest equipment and start using them to grow your business while putting the revenue generated by the equipment toward paying off your loan.
  • Lenders are more willing to provide financing to new businesses since the equipment itself is the collateral. There is less documentation needed in comparison to term loans.
  • According to Section 179 of the IRS Code, the interest fees and other financing costs can often be deducted from your taxes. You can also use the depreciation of the equipment as a tax deduction.

2. Credit Card

Business or personal credit cards can serve as a flexible source of small-business funding. You can use credit cards for big purchases or cover ongoing operating expenses.

Obtaining a business credit card can also help build credit for your company if you use it to pay bills in full and on time. But you may need to use your personal credit when you apply for your first business credit card. Your approval will most likely depend on whether you have a good personal credit history.

If you get a personal credit card to help finance your business, avoid using the card for personal expenses. Always keep your personal and business finances separate.

Business credit cards have a lot of advantages associated with them:

  • Build Business Credit: Make your credit card payments on time and keep the balance as low as possible. Your business credit will improve and you’ll soon be able to qualify for better financing products.
  • Better Financial Management: With a business credit card, you can not only separate your personal and business finances but it also allows for more efficient handling of finances. Most business credit card providers offer powerful financial tools to track and control spending, taking out a lot of manual work involved in bookkeeping.
  • Rewards: Many business credit cards have lucrative sign-up bonuses. Moreover, continued spending with the card provides you even more benefits, from cash-back to free plane tickets to discounts on merchandise.

3. SBA Loans

The SBA refers to the United States Small Business Administration. SBA loans aren’t actually loans issued by the SBA but are loans made by partner lenders, community development organizations, and other financial institutions. The SBA guarantees these loans to minimize lender risk and sets guidelines to make it easier for small businesses to get loans.

There are a lot of types of SBA loans available for your business like SBA 7(a) loans, 504 loans, Microloans, and more. Small businesses can make use of SBA Microloans to get funding of smaller denominations, up to $50,000. SBA loans are available in the range of $30,000 to $25 million and carry an interest rate of around 6.25% to 10%.

SBA Loans are especially advantageous for small business startups since they can turn to an SBA lender if other banks turn them down for financing. Although they are difficult to qualify for, SBA loans come with favorable terms which can help out a startup a lot!

GConnectPro can connect you with over 50 lenders and help you get SBA loans for your small business.

4. Business Line of Credit

Line of Credit is an arrangement between a financial institution and a client that establishes a preset borrowing limit.

A Business Line of Credit (LOC) is a revolving loan that gives business owners access to a fixed amount of money. They can use it in their everyday operations according to their cash requirements.

Just like a small business loan, a Business LOC provides a business with access to money with which they can pay off any business expenses. But unlike a small business loan, a Business LOC is revolving; this means you can use the funds up to your approved amount, then repay what you’ve used to make the funds available again.

A Business LOC can help improve your business’ credit rating by using the line of credit judiciously and repaying on time. Also, with a business line of credit, interest is charged only on the portion of funds that you withdraw. No interest is charged on the unused portion of the funds.

Business Line of Credit is a great option for a small business startup. It makes available regular working capital and also helps improve business credit.

Preparing to apply for a Small Business Startup Loan

You might be confused about how to prepare yourself and your business to apply for a startup loan. You know the end you want to reach, but getting there can seem difficult.

A good place to start is with your business credit score. Your business credit score measures the creditworthiness of your business. A good credit score can put you in a much better spot to get approved for business finance. So, prepare yourself to put in the work if you want to improve your business credit score.

You’ll have to take into consideration things like your cash flow, how long have you been in business, your business plan, collateral requirements, budgeting your monthly payments, and more. All these factors will affect your ability to secure quality finance for your business.

You’ll also need to identify the type of startup financing you want. Before gathering documentation for your business, you need to know what the lender will be looking for. The application for microloan will be very different than that for a business credit card.

You must also choose which lender you’d like to go with. The world of banking stretches beyond your local bank or even the financial institution where you do your business banking. So be sure to do your due diligence. Check if the lender has an online application process. This can save some precious time that can be put back into your business.

When you’ve narrowed down a loan type and lender, you can then begin to fill out the application.

Common Documents required for Startup Business Loans

All types of loans and business finance products will have different documentation requirements. But, if you have a startup business then you must keep all your general financial documents ready. This will help save you some time and apply for funding quickly and efficiently.

Here is a list of the common documents required for Startup Business Loans:

  • Business and personal credit report (the lender will obtain their own copies, as well)
  • Business forecast with details on future cash flow and costs
  • Tax returns and supporting IRS documents for both your business and personal tax accounts. Personal documents are required for all owners or registered agents of the business.
  • Updated business plan with all the necessary details on your growth and marketing strategies
  • Any applicable licenses and registrations for doing business in your state
  • All the financial documents deemed relevant. These include bank statements, credit card sales, unpaid invoices, and accounts receivable due to you.
  • Any legal contracts that would be relevant like franchise, incorporation, leasing, etc.

GConnectPro Eligibility Criteria for Startup Loans

At GConnectPro, we can help you get Startup Loan approved for the amount ranging from $5,000 to $150,000. With us, you can receive the funds within one to two weeks of submitting the application. However, you and your business must satisfy the following requirements to be eligible for Startup Loans:

  • Business must have been operational for at least 6 months
  • Business must reside somewhere in the U.S.
  • Your personal credit score must be above 680
  • The business must have generated at least $50,000 in revenue in the past 12 months

Also, to speed up the process of availing the startup loan, you should have certain documents ready. Such documents include the driver’s license, bank statements, balance sheet, P&L statements, personal tax returns, business tax returns, and business debt schedule.

Final Words

There are a variety of startup business financing options available today. A lot of young businesses can potentially be approved for them. Those with more time in business will certainly have a better chance than the ones only a few weeks in. A business with positive business credit history can stand out as well and be a favorable option for lenders.

While running a small business is difficult and expensive, starting a business might be the toughest part for entrepreneurs. It can be difficult to find a lender from whom to borrow, but it’s not impossible to obtain a startup business loan. We wish you the best in your search for business finance for your startup.

You can get in touch with us if you want to know more about startup loans and financing.
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