Understanding Startup Loans for Small Businesses
Starting a new small business is exciting. Becoming your own boss is a very gratifying experience. Many new small business owners are faced with strong financial needs that require an investment or startup business loan. Getting a new business startup loan is a better way to control equity within your business and do things your way!
The best startup business loans must meet the needs of the business and align with your business’s long-term goals. There are many ways to get funds to start a business, but for most people, the best way is a startup business loan through American Business Credit. A business loan can provide a lump sum or credit line that enables a startup to launch full-scale operations. For maximum chances of success, a business must start strong and grow quickly. Startup financing from a reputable lender can give business owners the cash they need to make this happen.
Types of Startup Business Loans
Many startup loans adhere to standards that are a little more flexible than traditional bank loans. Startup loans accept applicants with little or no business history. Owners of businesses that have not launched yet can also apply for startup financing. As a rule of thumb, a credit rating of 680 or higher will support a startup business loan. Along with checking credit rating, most lenders will also check an applicant’s professional background to see if he or she has the experience and/or resources needed to attain success. A loan for a startup will be one of the following two types:
1. Secured Startup Business Loans
A secured loan requires a pledge of assets to guarantee repayment. If the borrower defaults, then the lender seizes the property to cover the unpaid debt. Assets must equal or exceed the value of the loan. Lenders will also check to ensure that the assets will hold their value over the course of the loan term.
2. Unsecured Startup Business Loans
Unsecured startup loans do not require a pledge of assets; this means no collateral is required. Typically, the loan decision is made based entirely on the potential of the business and the personal credit history of the business owner. Because the lender carries a greater risk of loss in unsecured lending, interest rates for these types of loans are typically higher than secured interest rates.
Things to Consider
All startup business loans are not equal! This is particularly true for those applying for a loan for the first time. However, there are many differences to be aware of:
- Unsecured or Secured
- Term of the loan
- Interest Rate
As you move from one lending institution to the next, you may find that some of these details change. For example, one loan may offer a lower interest rate than another.
Tip: Compare the terms and conditions of startup business loans from at least three financial institutions. This will allow you to get a better grip on which bank offers the best terms for a company in your position.
What you can use a small business startup loan for:
- Property Purchases
- Equipment purchase
- Inventory purchase
- Supply purchases
- Meet payroll and other financial obligations
- Working capital
Common Questions
You are sure to have questions on your mind as you apply for a startup business loan. Here are three that you don’t want to overlook:
How long do I have to pay back my loan? This is known as the term and is very important.
Is there a prepayment penalty? Once your business starts to generate revenue, you may want to payback you earlier than expected.
What is my monthly payment? This will give you a better idea of what you are up against every month.
Regardless of your experience, financial situation, or the industry you are joining, with the right startup business loans you can better your chance of success.
Financing Makes a Difference
No matter your circumstances, the decision to use small business financing can have a lasting impact on your business. Carrying debt can shape the way you operate your new company, and it affects ownership and control. There are many options and expert advice available to assist you in finding the best fit for your needs and preferences when it comes time to secure business funding through a startup loan.
Lending Reflects the Growth of Technology
Startup financing is a fixture in today’s financial environment. This type of funding departed from traditional banking and financing when entrepreneurs had few choices for financing outside of banks and thrift institutions. The growing availability of startup financing correlates with the growth of startup companies in the tech sector. Relatively new technology companies like Google and Facebook have transformed the way we live and do business. They have also provided investors and other lenders outside of traditional banks with more opportunities to turn a profit by providing initial and ongoing startup financing.
Loan or Investment
Many business owners want to keep control of the businesses that they launch, so they are careful with where they derive funding. The investment approach typically requires surrendering some part of ownership and control over the business. Taking an outside investor may also require business restructuring to shield investors from liability, authorize the issuance of shares, and protect the owner from responsibility for losses. Business loans, on the other hand, add debt but do not usually require the surrender of ownership or authority.
American Business Credit Can Help
American Business Credit is in the business of helping startups to secure needed loans even when traditional banks turn them away. We can connect you with secured and unsecured loans of varying types to help you meet the funding needs of your startup. Our lending industry connections enable us to assist all types of businesses with finding the right type of loan with no upfront fees. We have more than 20 years of industry experience, and the application process is quick and easy. Let us work with you to find the capital that your startup needs.
