Starting anything from a scratch is a demanding task. Multiple successful businesses such as FedEx, Amazon, Turner Broadcasting System, ESPN, Tesla Motors and many others like these were not generating millions of dollars when these companies were in the initial stages. So, if your startup is not making enough profit in its early period, turn towards external funding. Getting a new business or a startup off the ground is a difficult task, factors such as low working capital, poor credit score, insufficient networking can be the primary obstacles. Fortunately, these problems are not permanent; a new business loan can help get rid of all the financial glitches. With the financial support of a business loan, your start will be generating enough annual revenue in no time.
Features and Eligibility Criteria of a New Business Loan
Even though every business loan lender has different interest rates and loan terms, but most of the lenders offer a loan amount of $5,000 to $1 million, with repayment terms of 6 months to 5 years and the interest rate ranging from 7% to 25%. A new business loan requires ‘the good’ credit score, but this is not a high-end requirement for you are getting fast access to money via a reliable and easy process. In addition to this, the new business loan borrower must be 18 years and above and legally residing in the United States of America. Furthermore, from SBA Loan to funds from friends and family, a new business loan comes in multiple forms! Let us explore some of the options and get your new business up and running.
Ideal funding options for the New Businesses/Startups
A wide range of funding options is available for young entrepreneurs, amateur business owners, and women business owners. Compare the merits and demerits, rates, benefits of each funding option, and apply for the most suitable one.
- Business Credit Cards
If you want quick access to cash, a business credit card is what you are looking for! Some business owners claim that business credit cards are one of the most important funding options. But if you choose the right business credit card, this can be a convenient business loan. Business credit cards with an annual interest rate of 16% and an annual fee of $50 to $100. Although a business credit card is not perfect funding to cover the working capital of a startup, it is enough to manage the cash flow.
More than 31 percent of the small businesses use a business credit card to finance their businesses. One of the many advantages of a business credit card is that cash rewards and bonus programs can provide great financial assistance. These rewards programs can act as a token of appreciation for the employees. In the initial stages, there is not enough revenue to treat employees to use the cash rewards so appreciate the hard work of your workforce.
The only demerit of a business credit card is that the higher the credit score, the higher the credit limit and vice versa. All things considered, bad credit businesses with balanced financial statements are encouraged to apply but their loan terms would not be as appealing as the loan terms of businesses with a ‘fair’ credit score. Get in contact with your bank, apply for a business credit card and use the funds to glam-up your new business.
- Personal Loans and Peer to Peer Lending
This funding option is perfect for business owners with a credit score of 600 to 650, and a personal loan offers a loan amount of $50,000. As a personal loan is an unsecured business, so the borrower doesn’t have to offer any collateral. The interest rate of this loan is 5% to 26%. With the personal loan or peer to peer lending, the personal assets of the borrower are at risk, if you are willing to take this risk for your startup, you must apply away. This lending can help you eradicate the short-term financial needs of your startup.
Before making the final decision, you must remember one thing: Failure to make the final payments on time result is a huge loss and in the end, your credit score will hurt badly.
- Equipment Financing
If your new business is a café business, a commercial espresso machine and a waffle iron is a must! The price of these pieces of equipment and machines is mind-boggling, through equipment financing your potential lender will help you finance the desired equipment. Most lending companies finance up to $100,000, and the term of equipment financing lasts from 2 to 5 years. Often lenders have equipment lease calculator, crunch in all the number carefully and find the total cost of equipment financing.
Usually, a borrower has to choose between equipment factoring and leasing. If you think you will need that particular piece of equipment by the time, you will clear all the debt, then apply for equipment leasing. On the other hand, if the need is temporary, then equipment factoring is a better option. As you are starting a new business, don’t rush and make a hasty decision.
- SBA Loans
After business credit cards, personal loans, and equipment financing, SBA loan is the next best funding option for your new business.
Primarily, small business administration has two main programs that support startups:
- Community Advantage Program
- Microloan Program
SBA loans are perfect for self-financed businesses and experienced business managers. These loans can give a financial push to new business so that they can present themselves as a financially stable and established unit. With a loan amount of $250,000 and repayment terms up to 25 years, a business owner can do whatever he or she pleases for the welfare of the business. Furthermore, the annual interest rate on the SBA startup business loan is 6% to 9%. It is an affordable and reasonable funding option, so if you have a credit score of 680, then apply away!
- Friends and Family
If you have any friends or family who are willing to funds your startup, then you are the luckiest business owner on the planet. What is better than getting an extra flow of funds without interest rate and taxes? Nothing. So, devise a calculated and strategic business plan and share your mission and vision with your peers. In all of this, remember to keep your business life separate from personal life.
There are ways you can go with this, either you can ask your friends and family for the money or you can give them some of the shares. If you are selling a share of your business, then you must be ready for nonstop business suggestions for they would like to pitch in the major business decisions. When your business is in its initial stages, major decisions should come from one business owner.
Keep all the funding options in mind, head over to the official website of the Merchant Advisors and explore the other startup business loan options and characteristics of a new business. To stay up to date, follow us on Twitter (@Onlinecheck) and Facebook (@Onlinecheck). If you have any question, feel free to call us on our toll-free number at (833) 827-4412, our loyal and keen financial advisor will answer your every question and guide you throughout the way.