New Business Start Up Loans – Last month, four researchers (and business/finance professors from the University of Texas, University of California, Los Angeles, and New York University) published a study titled How Much Does Credit Matter to the Success of Small Businesses in the United States?
Research shows that small business loans are critical to startup success. These research results were not a surprise, and they are consistent with many other market data that have been talked about for a long time. When properly acquired and used properly, small business financing helps businesses grow. Learn more about researching small business loans
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The panel reviewed five-year startup loan applications from Accion Texas, a lender that provides capital to startups across the country. (A startup is defined as a new business that has been open for 6 months or less, and the majority of applications were in retail and restaurant businesses.) The study found that: “Startups that receive funding are significantly more likely to survive, generate more revenue, and create more jobs places .”
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The research illustrates the importance of access to credit and is another reminder that borrowing capital, when done right, can be critical to business success.
Small business financing is like many other things. It is a tool that can be used wisely for big things. It can also be misused, in which case it won’t help your business.
Tom Gasaway is the founder and president of LenCred. His expertise is in helping small business owners in their first two years of business successfully obtain business financing that separates their personal and business credit and protects, preserves and improves their credit profiles. Tom blogs at LenCred’s blog, The Business Finance Lounge. Any type of business financing for new businesses up to one year old can be considered a start-up loan.
With strong personal credit, even first-time business owners can qualify for a loan to help with startup costs. Startup financing is available in the form of business credit cards, lines of credit, SBA loans, nonprofit microloans, personal loans for business use, and more.
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A business start-up loan refers to the financing of new businesses with little history or no working capital.
There are three common types of business loans—start-up financing, business credit cards, and lines of credit.
All are great options if you have a strong personal credit score and are also looking to increase your business credit.
Small start-up loans of up to $150,000 in the form of fast cash or credit are the answer for many who want to start their business.
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Business relationships require some form of trust, and collateral is just a way to assure creditors that their investment can pay off if your entrepreneurial endeavors don’t go according to plan.
Note that when you finance a car, you don’t actually own the car until you pay off the loan.
That being said, since small business startup loans typically involve small funds and capital, collateral is not required to secure financing.
For small business administration loans, personal guarantees are required from each entity that owns 20% or more of the business being applied for.
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In some cases, this applies to people in “key management positions”, whether or not they are owners.
In short, if you are a sole proprietor, by default you will have to personally guarantee any small business loans you make to your company.
Entrepreneurial life comes with inherent risks, but it’s actually a great time to be a new small business owner, as there are more tried-and-true startup funding options than ever.
Work with a finance company to get approved for a set of credit cards to help build business credit
Startup Small Business Loans
Microloan with government support for amounts less than USD 50,000 with a longer application process and stricter requirements
There are few financing options that apply to new businesses, but there are several different loan products that are appropriate for startups.
Let’s take a look at small business loans for first-time entrepreneurs and other business financing options that are great for beginners:
From general-purpose office equipment like computers and phones to specialty tools like shovels and tractors, equipment financing (also known as capital equipment loans or asset-based lending) is a business loan that enables use the equipment you buy as collateral to secure the loan.
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The most attractive feature of equipment financing is that your lenders can offer a lower interest rate because the collateral offsets their responsibility for investing in an unproven business owner.
The length of this arrangement can vary from a short-term loan to a long-term loan and depends largely on the amount of the loan you are requesting and the amount you can afford to pay up front.
Fortunately, capital equipment loans allow you to pay off the cost of each piece of equipment while using that equipment to build working capital.
In addition to the typically lower interest rates on this type of loan, startup equipment financing also offers one additional bonus:
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Excellent Personal Credit – Even if you provide collateral, you will need a detailed credit report with a credit score of 680 or higher to qualify for startup equipment financing.
A vendor quote is a statement from the hardware vendor about the cost of each unit you are going to purchase, and this will help determine how much you will need to borrow.
A statement of use is a document you write that defines how each piece of equipment is an integral part of your business.
Similar to consumer credit cards, a small business credit card gives you access to revolving credit for day-to-day transactions.
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First, business credit cards add value through rewards programs that can reduce out-of-pocket expenses related to office supplies, travel, gas, dining, and other business expenses.
Keeping your business expenses separate from your personal expenses is a good business practice that will give you an organizational advantage while continuously building your business credit history.
Do we even need to mention how luxurious it would be to have a cash flow cushion in case of emergencies?
Depending on your credit limit, you may have tens of thousands of dollars in available credit to keep you calm when money is tight.
Start Up Financing
If you think a business credit card might be right for you, these points will help you choose the right card.
Ideal for new business owners with excellent personal credit and methodical spending habits, home equity lines of credit are one of the less traditional types of startup loans.
If you’re building a line of credit, you’ll be working with a finance company to get as many business credit cards as possible in one convenient move.
Once approved, the available credit amount will be obtained by combining the credit limits of all the credit cards for which you are eligible.
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With a line of credit program, you’ll have access to a selection of credit cards that you can use to make purchases and get business credit quickly.
Regularly making late payments on multiple cards can have a serious negative impact on your business credit.
For small business owners looking for less than $50,000, an SBA government loan may be the best choice.
SBA loans are designed for small business owners who have had trouble obtaining business loans from traditional financial institutions.
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If you or your business fits their mission, you may qualify for a microloan with a low annual interest rate plus additional benefits such as free training and consulting programs.
As risky as it may be, cash-strapped new business owners can access financing by using their personal credit to get a personal loan.
Under the right circumstances, the dangers of personal business loans outweigh the benefits.
This is a good reason for a new business owner to finance their business with a personal loan.
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In addition, the entire process of obtaining a personal loan can be much faster than obtaining the equivalent of a business loan.
You can get approved for a personal loan mainly based on a high credit score and low credit utilization.
Don’t forget to consider viable loan-free options like crowdfunding, grants, and borrowing money from friends and family.
Crowdfunding is a popular option for entrepreneurs who want to confirm their target market without much commitment.
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Essays, forms, and other minimum requirements aside, getting grants is one of the easiest ways to pay for your education.
Convincing your friends and family to lend you a couple thousand dollars here and there can really add up.
Crowdfunding can be a great way to finance your new business debt-free, but there are downsides:
The average interest rate for equipment financing is 20%, but good credit can get you a bit lower.
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If the equipment you need to purchase costs $15,000, and you finance the entire purchase at 20% interest, you will pay back a total of $18,000.
Loan terms usually depend on the expected life of the collateral, but you can reduce the loan amount by making a down payment on the equipment you need.
Business credit card APRs are usually between 13% and 20%, but pay special attention to additional fees such as annual renewals, late fees, balance transfer fees, and foreign transaction fees.
Many business credit cards
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