When it comes to funding your new business, loans are one of the most common solution. Follow our guide on using loans for startups.
You’ve got the million-dollar business idea. You’re ready to launch the product or service the world needs. Now you just need a way to fund your entrepreneurial dreams.
Navigating the different kinds of loans for startups may seem overwhelming, but we’re here to simplify the process.
Let’s get into what you need to know!
Family & Friends
Is your mom your biggest fan? Have you and your roommate always dreamed about going into business together? Does your uncle’s cousin’s brother believe in your crazy idea?
Many people get their feet wet using the love and financial support provided by friends and family. With this option, you can practice flexibility and collaboration.
In other words, it’s a personal and business transaction. Together with your loved ones, you can collaborate on a reasonable loan, repayment schedule, and interest.
One important thing to note: make sure you get everything down in writing. Since family and friends can become emotionally and personally involved, you don’t want to cause any bad blood.
Think you have to step into a bank or credit union to apply for a business loan? Think again. You don’t need to look further than your laptop.
Today, many companies specialize in providing online loans to small businesses. Each of them has their own terms, rates, and conditions, so be sure to do your research before you begin applying.
Common online loan companies include:
- Lending Club
- Funding Circle
- Headway Capital
Before you begin your online business loan search, you need to consider your time in business, credit score, and loan amount. If you have financial issues, such as a history of bankruptcy or a business tax lien, these factors can also impact your loan eligibility.
Need high-end machinery? Commercial vehicles? Expensive parts?
An equipment loan provides the financing you need in a reasonable, fixed amount every month.
Instead of being on the hook for upfront, initial costs, these loans work similar to a home mortgage or auto loan. You pay a part of the capital and interest each month until you own the property.
The downside? Equipment may become obsolete, ineffective, or downright useless as your business evolves. You’re still responsible for paying the loan even if this happens.
Business Credit Cards
Business credit cards work very similarly to personal cards. You apply through a traditional financial institution, such as Chase or American Express, and then provide various details about your income, net worth, and revenue.
After being approved, you’ll receive a set credit limit. You can use this card for any qualified business expenses, which makes it an attractive option for quick capital.
Moreover, many financial institutions incentivize their customers with lucrative rewards for signing up and using business cards. These incentives can include:
- airline miles
- hotel stays
- cash back
- gift cards
- lounge access
- airline/hotel status
- price protection and warranties
- travel concierge services
Like with any credit card, you must heed with caution if you go this route. Credit card interest rates tend to be extremely high. If you anticipate that you’ll have trouble paying your balance in full, this could be a financial detriment.
Concerning startup funding, crowdfunding has exploded in popularity in recent years. That’s because the premise is both simple and attractive to entrepreneurs and investors.
With crowdfunding, you don’t need to worry about your credit score or financial history. What you do need to worry about, however, is having a solid and enticing business idea that will attract potential investors.
With this option, you’ll need to hustle. That means introducing yourself and your business idea to others. It means sharing and discussing your promotion on social media.
Finally, it means making your business idea seem so irresistible that strangers want to invest in it.
Popular crowdfunding options include:
Make sure to do your research and spend time getting to know each of these sites and their regulations before considering this option.
Microloans are small business loans that typically range between $500 and $50,000. The Small Business Administration (SBA) manages one of the most popular forms of microloans in the country.
These loans can be used to finance business-related expenses ranging from startup fees to marketing costs to equipment leasing.
Microloans typically support communities, and they’re often for business owners from disadvantaged backgrounds or those working in significant industries (such as science and research).
With that said, anyone can apply for a microloan. It tends to be a viable option for those who cannot receive a traditional loan from a bank or those who have subpar credit.
It’s possible to fund your business through a personal loan. It also tends to be easier to qualify for this type of loan, especially if you have a good credit score and financial history.
Essentially, you need to demonstrate your credibility and trustworthiness to the financial institution. However, you need to make sure that you thoroughly research the loan limits, conditions, and restrictions.
Some banks have strict requirements for what a personal loan can and cannot cover. Make sure you fully understand these requirements.
Beware that while business loans can be deducted off your taxes, personal loans cannot. If a massive tax bill is a concern to you, this may not be the best option.
Closing Thoughts on Loans for Startups
Navigating the various loans for startups may seem overwhelming, but it doesn’t have to be. With the right mindset, preparation, and planning, you’ll be well on your way towards creating your entrepreneurial dreams.
Looking to supercharge your business? Check out our motivation archives for more financial inspiration today.!