Over 500,000 startups businesses launch each month in America, according to Fundable. However, of these startups, only half will make it past their fourth year and only 44% will make it past the fifth year.
Where did the rest go?
According to smallbiztrends, of the top ten causes of small business failure, funding ranks second at 29 percent. While funding is a big problem for startups, there are various methods you can use to launch your business.
One of them is a new business loan. It doesn’t come cheap but understanding the available options will help you locate the best one for your business. Take a look at some of the business loans tailored for startups and how they operate.
1. Business Credit Cards
Your credit score will determine whether or not you can qualify for a business credit card instead of the business. This means you don’t need any annual revenue, a business credit history, or even business experience to qualify.
Credit cards, in general, are risky in nature However, proper management will help you to take care of the operating expenses. Often, card issuers offer a grace period between the statement date and the due date to allow you some time to pay off the balance.
Besides helping you manage operating expenses, you’ll also benefit from various rewards for using the card when making purchases, along with other perks cards offer. In fact, if you have a card with a reward system, chances are you may get more in rewards than what you pay as fees.
One downside to business credit cards, though, is there’s no fixed repayment term; that’s why they are referred to as “revolving debt.” However, you won’t pay anything in interest if you pay the debt in full before the due date.
On the other hand, if you carry a balance, prepare to pay up to 20% or more in interest, which can delay your exit from debt.
From the title, it’s clear these loans offer small amounts and it can be found online (with the help of website: www.nation21loans.com ).They are suitable for startups trying to get off the ground. If you’re in this category, try checking these places:
· Non-Profit Microloans
Kiva is one example of non-profit organizations offering microloans. Unlike SBA loans, you’ll need to go through different criteria in order to qualify for the loan; Kiva loans are also smaller than those offered by SBA.
For example, Kiva requires that you first raise the money for the loan amount through people in the local community. This then will grant you access to Kiva’s community where individuals can then contribute toward the loan amount.
· SBA Loans
Known as the Small Business Administration in full, this agency offers microloans to borrowers who meet the criteria. Borrowers can receive a maximum of $50,000 to be repaid in a maximum of six years.
This is how SBA loans work: You’ll first apply for a business loan from a recommended lender. Once you qualify and receive the loan, SBA steps in to insure the loan, which means the lender doesn’t have to worry about repayment.
Having said that, it’s important to note the lender is responsible for setting the requirements, not the SBA. Therefore, it’s possible for the lender to turn down your loan application. However, if you qualify, you’ll benefit from low interest rates ranging from 8% to 13%.
3. Supplier or Vendor Credit
Does your business rely on suppliers or vendors for services and products? If yes, there’s a chance you can improve your cash flow by agreeing on a financial deal. For example, rather than paying on delivery, consider working out a plan which allows you to pay in 30 days. If you take a deeper look at this agreement, you’ll see that this is free financing on top of helping you to manage working capital. However, this will only work if you pay by the agreed date.
In addition, it’s common for various suppliers to decline this agreement if you haven’t been in business with them for a certain amount of time. Others will want to know how long you’ve been in business before they can agree to this type of deal.
The best part about vendor credit is you get time to build and strengthen your business credit. Some vendors may chip in by reporting your on-time payments to credit reporting bureaus.
4. Personal Credit and Savings
This is one of the most common funding sources for new businesses. In fact, Fundable says 57% of new businesses use personal credit and savings. While this may not be the best route to take when looking for startup capital, it may come in handy when other financing methods aren’t forthcoming.
If you settle on this method, it’s important to create buffer savings in your budget just in case things deviate from your initial plan. You don’t want to be left without any savings to help you navigate tough times after if the business goes under.
5. Close Friends and Relatives
This is another common method business owner use to fund their startups; up to 38% of new businesses get a portion of their capital using this method. As easy as it may appear, seeking financing from friends and family members may be difficult in reality.
The conversation may be uneasy, but this shouldn’t dim your ambitions, especially if you believe in the service and product, as well as your repayment plan. One option is to invite them to become investors in your business, which will offer them something additional for their money.
6. Equipment Financing
Depending on how your business is set up, your startup may qualify for equipment financing. For instance, if you intend on buying a 3D printer or any other equipment for the business, this purchase will act as collateral. Should you fail to repay the loan, the lender will move in to repossess the collateral in order to clear the debt. Since the lender is aware of the collateral used, it means the lender will neither rely on your business’ success nor the ability to repay the loan, so there’s little risk involved.
Nonetheless, it’s important to understand that this financing method isn’t available to everyone. There are a lot of requirements set by the lender which you must meet to get approval. Your business experience isn’t the only factor in question.
New business loans are designed to help startups launch their business and get them past the first two years. While searching for financing, it’s common to come across lenders who’ll not offer you the funds you need, but don’t let this discourage you in any way; instead, take some time to go through all financing options available with the aim of finding a suitable one for your business. Keep in mind, this may take a while, but it’ll be worth it.
After settling on the type of business loan, do some shopping and compare various lenders to get the best offer because criteria, including interest rates and others, will differ from one lender to another.