Start-Up Business Loans – How to Find the Best One

Many people dream about setting up a business. But the reality for most, depending on the type of business, is a lack of adequate financing. Even those that manage to launch the business face working capital challenges.

24% of businesses will close because they run out of money. 13% admit to struggling to find financing. Accessing funding for startups can be a complicated process. Traditional lenders need proof of business viability as a condition for giving money. Application processes can be tedious. 

Further, entrepreneurs with poor credit scores can find it especially difficult. True, there is funding available in the form of bad credit loans. But such can be prohibitive due to the high-interest rates.

Our article explores how to find the best startup business loans. We will share insights to navigate the challenge of getting financing for startups.

Consider Alternative Lenders

One important tip for entrepreneurs is to separate personal and business finances. No one can come after the money in your personal account in case of business liability. But there is another crucial reason. And that is the establishment of a credit history for the business. 

When looking for financing, traditional lenders look at their credit history. Without business credit, they must focus on the entrepreneur’s personal credit report. A poor personal credit score can be a reason for the bank to deny the loan request.

Alternative financing offers the perfect small business funding solutions. They have become a popular choice due to various reasons, including:-

  • Less stringent credit requirements. A good business or personal credit score does matter. But, alternative lenders will rarely turn you away if it is less than perfect.
  • Quick application processes. The lenders may only need proof that you have legally registered the business. You may also need to show monthly revenue and have been operating for a specific period.
  • Digital applications make it easy to apply for small business loans. It removes the need for face-to-face meetings. Some of the application processes are as quick as 10 minutes or less.
  • Quick approvals of loans. If you qualify, within 24 hours, the money should be in your account. The lenders will need your banking information. Fortunately, it is easy to open a checking account online instantly.

What Type of Loan Do You Need?

When looking for a lender, have clarity on the type of loan you will need. Alternative lenders have a range of products available for startups. These include:-

  • Invoice financing allows you to borrow against what customers owe you. Many startups struggle with cash flow because of unpaid invoices. Invoice financing ensures the company has enough cash flow to continue normal operations.
  • Equipment financing provides funding to buy, upgrade, or lease machinery or equipment.
  • Inventory financing allows the business to stock up. It is especially crucial for seasonal businesses. Such go through peak and off-peak periods that can interfere with cash flow.
  • Working capital loans are short-term and provide cash for everyday operations.

There are many other types of facilities available. The best lenders will have no problem advising you on what is available.

Transparency in Fees Structure

Do not make the mistake of not going through the loan terms in keen detail. Reputable lenders will provide a complete breakdown of the fees and interest rates. This is critical because some lenders have very attractive offerings. But, many hidden fees will make the loan more expensive.

In your research, for small business loans, check out several lenders and compare their offerings. It also pays to read customer reviews for honest feedback on what to expect. Do not be afraid to ask any questions if you do not understand whatever they present to you.

Flexibility in Repayment Terms

Pay close attention to the repayment terms. Long periods may seem attractive because it can be easier to manage smaller payments. But, in the long term, you will end up paying much more in interest. 

Look for lenders who offer flexibility in repayments. Some alternative lending platforms break down the payments into weekly, biweekly, or monthly. It makes it easier to schedule the payments to what is comfortable for you and the business.

Also, take note of the penalties for late payments. The same may apply if you decide to make a lump sum payment. Some lenders discourage early exits because that is how they make their money.

Other lenders offer more flexibility, like the ability to renegotiate loan terms. They may be willing to amend or update the terms before you pay back the total amount. They may alter that loan repayment period or even the interest rates in some instances. Such flexibility can be a great relief for a startup facing financial constraints.

Do They Offer Business Lines of Credit?

Most lenders will give you the full amount when you apply for a loan. Immediately the money hits your bank account; the interest starts piling up. Let’s say you borrowed $300,000. But, you only end up using $150,000. The interest applicable will be on the $300,000.

A business line of credit allows you to draw only what you need. The lenders will avail a limit of the total of $300,000. You can then draw the amounts you need without surpassing the limit. And, like in the case of credit cards, you only pay interest on what you have taken.

A business line of credit is a fantastic solution because you don’t pay for what you don’t use. The ability to draw the amounts when you need them can also cap your spending. If the business cannot pay the balances at the right time, you can opt not to draw any more cash.

Final Thoughts

We have looked at some factors to consider in finding the best startup business loan. Alternative financing provides a fantastic solution for small business funding. They are less stringent in their requirements than the traditional banks. 

But, take the time to do proper research or due diligence on the lenders. See what kind of facilities they have and the level of flexibility. Before signing up for any loan, make sure you understand the loan terms. Look at interest rates, repayment terms, upfront pricing, and no hidden fees.

Image source: Pixabay

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