There’s nothing more satisfying than starting your own business and seeing it become successful. It’s like giving birth to your own little cash baby!
Lots of people focus on the statistics about startup businesses that fail. But many, many startups succeed. In fact, about half survive beyond four years.
That means that the odds of succeeding in your startup are better than the odds of winning a blackjack hand. But in order to succeed, you need the right tools in place. And that includes funding.
In this article, we’ll focus on funding for startups. And we’ll give you our top six loan options for startup businesses.
1. Home Equity Loan
When you start a business, there’s really no difference between you and your business. And that means that you can use personal collateral to fund business expenses. If you have equity in your home, this is a great option.
Home equity loans come in two formats. A home equity line of credit or HELOC is the most common type. And they’re the option with the least amount of paperwork.
With a HELOC, you use the equity in your home to fund a line of credit that you may draw on at any time. HELOCs generally require interest-only payments monthly. And you can draw on them and pay them down as often as you like.
You can also opt for a term loan that uses your home equity as collateral. With this type of loan, you’ll have a fixed payment every month. And it will pay off in a specified term, say five years.
2. Equipment Financing
Does your new business require equipment? If so, you should look into financing your equipment purchase through a dedicated equipment finance lender.
Equipment loans and leases are different in how you account for them on your new business balance sheet. So discuss the exact format with an accountant before you start. But they usually have favorable terms and don’t require much money down.
Note, you’ll have to sign a personal guaranty for an equipment loan. And your lender will pull your credit. So if your credit is less-than-perfect, this may not be your best option.
3. SBA Loan
The Small Business Administration (SBA) is a governmental branch that helps small businesses. You still have to go through a bank to get an SBA loan. But their loans are partially-guaranteed so there’s less risk to the bank.
There are two main types of SBA loan: 7(a) and 504. An SBA 504 loan is specifically for real estate. If you need to purchase land, this is probably your best bet.
A 504 loan requires a 10% equity injection by the borrower (you). These loans have preferred rates for borrowers with good credit. And they can go up to $20 million.
SBA 7(a) loans are more common. They can go up to $5 million and can be used to finance almost anything. This includes working capital, equipment, and real estate.
You can even get an SBA loan to finance inventory. Look into inventory buying options like group buying for small business. And discuss SBA financing with your local SBA lender.
The drawback to an SBA loan is that there is quite a bit of red tape to navigate through before you see any cash. But if you’re looking for a larger loan and you have good personal credit, they’re a great option.
4. Personal Loan
Personal loans are always an option, even if you need the money for your business. There are several ways to get a personal loan.
If you go through a traditional bank, you’ll need good personal credit. You may qualify for an unsecured loan which means you don’t have to pledge any collateral. Or you might opt to finance something you own free and clear, like a boat or ATV.
If your credit isn’t stellar, there are personal loans available through online lenders. These are considered short-term options, like a payday loan. And they often come with steep fees and high rates.
There are also websites that hook you up with lenders through peer-to-peer lending. Again, watch out for high rates and fees with these sites. Do plenty of research to find the best personal loan to meet your needs.
5. Investor Financing
Investor financing may sound intimidating. But it doesn’t have to be.
Family is a great place to look to when you’re trying to gather up funds for your new business. There’s a hefty gift tax on money that’s gifted to you from family members. So you’ll want to structure the transaction to avoid this.
Sell family members shares in your business in exchange for startup money. Then you can avoid the gift tax. And eventually, you can pay them back by buying out their shares.
Other investor options include angel investors and venture capitalists. These are individuals or groups of investors who will give you interest-free startup money in exchange for shares of the business. It’s easy to find these types of investors through online searches.
Do your research before you jump into this. And make sure that there’s a solid contract in place laying out everyone’s rights to business equity.
6. Business Credit Cards
We saved this option for last because it’s not the most ideal way to fund a business. But it is an option worth exploring.
Many business credit cards come with sweet introductory offers. They’ll allow you to take cash out for a low fee. And they’ll give you a timeframe of 0% interest to pay off the debt.
Of course, if you don’t pay the debt off before your time is up, they’ll start charging you high rates. Credit cards usually charge between 12%-18% interest.
So use this option wisely. Come up with a solid plan to pay them off before you hop into credit card debt.
Funding for Startups: Get the Funds You Need Now!
There’s no shortage of funding for startups out there. You just have to know where to look! We’ve given you a few options to explore.
Consider leveraging your personal assets to get the money you need. Talk to friends and family. Or consider using an introductory offer on a business credit card.
And if you need more ideas for funding, check out our money & finance section. We’ve got tons of tips and tricks of the trade to help you get off on the right foot!