You may have a lot of plans, ideas, and enthusiasm for your new business but you need money to make it a success. Unfortunately, most people find it difficult to get a business loan or lack the information they need in order to finance their new business.
No doubt, money is a big worry when you are starting up a small business. Perhaps, this is the reason why most people give up on their dream of being a business owner.
According to the report by the U.S. Small Business Administration (SBA), over 75% of small businesses in the U.S. are considered as "non-employer" business by the government. This means that only the owner is the person working on the business. More than half of these businesses have a lifespan of just 5 years because of lack of finance.
Only a third of these businesses remain in operation after ten years. Some of them will grow into medium-size businesses while a very small fraction later turns into large corporation such as Apple Corporation that started from a garage.
Today, the average cost of starting up a small business is somewhere around $40,000. Even if you decided to invest all your personal savings as startup money, you will still come up short. You need a way to get startup business loans to give your business chance of being among the third that survives after 5 years.
Fortunately, there are a number of startup business loans options available today. Startup loan, unlike investors or crowdfunding, is a traditional source of small business funding. It gives the new business owner an opportunity to get a loan from the traditional lenders.
In this article, you will learn everything you need to know to get the loan you need to take your business to the next level.
IN THIS ARTICLE
- What You Need to Do Before Seeking for Startup Money
- Where to Get Business Loan for Small Business
What You Need to Do Before Seeking for Startup Money
To boost your chances of getting a business loan, you will need to cover the basics. Nobody is going to throw money at you because you asked nicely. Traditional lenders want to ensure you can repay the loan and that your business is viable. Moreover, they have thousands of people demanding for a loan, so consider this a competition and prepare a water-tight presentation.
1. Create a Business Plan
Even if you are looking to get startup money from alternative sources, no one will lend you money without showing him a business plan. Lenders want to have as much information as possible about your business. They want to know it is viable and you can actually pay back. They also want to know how you will be spending their money. Make sure you prepare a good business plan; if you don't know how to do it, get help from a professional.
2. Understand Your Credit Rating
If you have a bad credit score, banks and other traditional lenders won't consider you for startup financing. You either have to look for a way to improve your credit score or seek for alternative lenders. You can look for business loans online. There are companies that can help you with the fund you need to support your small business.
3. Prepare Your Documents
Depending on your lender, certain documents will be required from you. Ensure you have these documents such as income statements, bank statement, resume, personal tax returns, financial projections, and more.
Where to Get Business Loan for Small Business
Now that you have what you need, it is time to go and ask for a loan. Below, we have listed various sources for startup money. You can get the loan from any of these sources:
1. Friends and Family
Friends and Family are the most common way of obtaining startup money for a new business. Most people with bad credit score use this option. Even if you have a stellar credit score but a friend willing to lend you money, this option can help you save money you would have otherwise spent on paying bank interest rate.
Crowdfunding is one great way to look for business loans online. There are tons of small businesses that use crowdfunding sites such as Kickstarter and Indiegogo to get startup financing.
Crowdfunding is a pool of investors that agreed to finance your small business in exchange for equity ownership.
Banks, in most cases, are the most preferred and most popular option for getting funding for new business. If you have a stellar credit score and a viable business plan, banks will give you a loan that comes with monthly interest rates. Some banks can give you as much as 70% of the money you need to start your business.
4. The Start-Up Loans Scheme
There are various government-run initiatives such as SBA that will provide you with a certain amount of loan for your small business. In some cases, you will get up to 100% of the investment amount you need to start your business from these sources. The best part is that the interest rates to be paid on loans from these government-run initiatives are usually small.
5. Insurance Companies and Building Societies
You can as well get business loans from insurance companies and building societies. The great thing with these business loan sources is that they are less restrictive in terms of their requirement. These companies can provide you with the loan you need to start your business. Unfortunately, you may have to pay higher interest rate.
Starting your own business always seems tough because of the huge amount of money involved. To ensure your business have a higher chance of success; consider various loan options to obtain a startup money for your business.