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Published October 21st, 2016 by

Small Business Lending Solutions for Every Startup Entrepreneur

Small Business Lending Solutions for Every Startup Entrepreneur
Many small business owners assume that starting small meant less risk. Little did they know, there are actually challenges that are unique to small business, and it includes funding options.

The problem with small business lending is not really the number of options but the eligibility and requirements that one must secure first. There are also important criteria that loan providers do follow, which baffles many small businesses – either they don’t have any idea or they did not try to learn more about it.

It is also frustrating when a small business owner, which started out positively with dreams in mind, got denied a loan. Sometimes, the way the bank discloses the reason is too technical or is full of business jargon. There are also times it might not disclose it at all! Without the right information, a small business will be denied just the same even if it tries ita luck with other banks.

Actually, 27% of those surveyed businesses by the National Association of Small Business (NASB) in 2015 mentioned that their biggest struggle is obtaining a substantial funding.

Because of this, most small business owners averted to personal savings, which can put their personal finances at risk. For some whose needs are urgent, they resorted to fast but high interest yielding funding like credit card loans, which provides short term solutions that may have long term implications.

In order to maximize your chances of getting a positive response, it is important to know how a small business loan works, including its eligibility requirements and terms. Let this article guide you in knowing your best options in funding your startup venture.

Challenges of a Startup (and Some Tips to Overcome Them)

Securing a capital for your business startup is one of the toughest ones to do. Banks are putting emphasis on credit scores, financial histories, and assets more than it does to a brilliant idea or a promising business plan.

One has to know that banks are not investors but lenders. They will prioritize profits than to take the risk of an uncertain business venture.

Primarily, startups are being denied of loans from the most conventional means like bank financing and US small business administration loan because of its huge risk. These financial institutions need proof of the ability to repay and to use the grant wisely, which can only be found in credit histories, credit scores, and a substantial number of years of running the business. Some small business loan providers will ask for collaterals, which a small startup business may not have because they don’t have enough assets yet.

Some loan providers can do well with some proper convincing. Your aim is to make them believe that your business has minimal risks involved, which will make the investment worthwhile. You can boast of your strong business model, promote your management team, and sell off your skills, experience, and expertise. Personal credit history can also influence your assessment, and if you’ve got a good track record, let them know!

Common Small Business Loan Requirements

As you go longer about your business, the higher your eligibility to more small business loan options. Basically, here are the following factors that can influence your list of choices:

  1. Length of time that your business is running
  2. Yours and your business’ credit score
  3. Gross annual revenue of your business
  4. Net annual profit of your business
  5. Collateral
  6. Management team skills
  7. Your business’ cash flow
  8. Re-payment terms

Your answers will help you assess what type of small business loan will best fit your needs and eligibility. However, for a startup, these factors may not be applied yet. The figures may be estimated, but the essentials like credit score isn’t achievable (if you haven’t loaned, or even used a credit card all your life). This then limit your options, or you may have to deal with higher interest rates to compensate for a more lenient terms.

Small Business Loan Program

Despite of the growing pains in looking for the best option for astartup, your market for funding remain robust with newer funding concepts that can suit you well. Here are some of the small business loan for startup options, including an overview of its pros and cons, to help you in assessing your startup.

  1. Loan Your Retirement Money

There are specific small business loan providers that can let you borrow up to 100 percent of your retirement fund. The main advantage here is you get to “withdraw” the money without paying early withdrawal fees, charges, and taxes. You can also use your own money, and you are practically not in debt. Should your business succeed, you get to grow your savings too!

This type of startup loan doesn’t impact your credit score, which can either be positive or negative for you, and the disadvantage here is the risk you put over your retirement funding.

  1. Personal Loans

These can come from different sources like banks, credit cards, or online lenders. The amount may not be that big but may be enough to support your small start. The risk here is your own credit score, and some like online lenders can charge you exorbitant rates for convenience and leniency.

  1. Merchant Cash Advances

If you need a small business loan without collateral, you can avail a merchant cash advance. The merchant bank that processes your credit card payments can give you upfront cash and deduct a certain percentage of your daily sales until the loan amount plus interests and other charges have been repaid. It is convenient and flexible and won’t hurt your cash flow because it only asks a small percentage of the daily credit sales.

  1. Home Equity Loan

You can use your personal assets as leverage, and you can loan as much as 90 percent of the value of your home equity. Home equity loans have lower interest rates, but risking their own homes may not be okay for some.

  1. Personal Savings

For some that doesn’t like the idea of starting their ventures on debt, using personal savings can save one from paying extra for interest and other loan charges. It is also a good opportunity to grow your savings and get the full advantage. The downside here is that you may have to rebuild your personal savings again because there is a higher chance that you will gain it back.

  1. Loan From Friends or Family

It is limitless, and you won’t have to deal with huge interests. The repayment is flexible, and the process is convenient. However, it is hard to keep the loan from becoming too personal. Also, you and the one you indebted in might have some misunderstandings that the relationship might end up bad.

  1. Venture Capitalism

The concept is actually aimed at startup companies but would be giving priority to those that has a higher growth potential. Venture capitalists usually are industry specific and are often experts in the field. Most venture capitalists wanted to gain experience in entrepreneurship but doesn’t want to do the managing right away. Instead, they capitalize their money on aspiring business startups and gain some of the control, but not everything. The startup owner, however, might be uncomfortable dealing with a capitalist, but if good communication will take place between them, it could be the start of a more worthwhile partnership.

  1. Angel Investing

Some angel investors prefer entering the company in its startup stages, but there are also some who can help both in financing and managing a long running but troubled business.

Angel invested companies like Google and Costco are credible testimonies of why it is an effective option for an additional funding. Most angel investors incorporate strategic planning and methods, which both of you can benefit from.

  1. Invoice Advances

The company will lend you cash in the same amount of your invoice receivables. This way, your cash flow won’t be interrupted, and you get to continue growing your company while waiting for your clients to pay for their invoices.

  1. CrowdFunding

It is a business model where you will be convincing a number of people to invest on your brilliant idea for a startup venture. The process usually happens online, and a borrower must come up with a sound and compelling business plan in order to gather as many investors and pool the needed capital for it. However, there is no direct assurance that you can complete the capital you need and on time, and one may be pressured to perform with many investors at stake.

  1. Loan From Nonprofit Lenders

Startup business owners that have bad credit histories will double the challenges when it comes to seeking additional funding. Nonprofit lenders can still extend their services, granted that they will provide proof of a strong and steady cash flow and income to support the loan payments.

Remember that money is not only the capital that you may have. Your education, trainings, exposures, experiences, skills, and network are also your assets, which are also valuable to successfully run your business. Sometimes, it takes to be more resourceful when faced with challenges, which can minimize your expenses or needs.

They say start small yet dream big. Your startup business will get its own share of challenges when it comes to thriving and competing in the market. In knowing the essential “tools of the trade,” you can minimize the risk and frustration as a small business start-up owner.

Managing a business, whether big or small, entails skills and creativity in order to be more effective.

The challenges  should not stop you from expanding and growing. Instead, you can use them as instruments for learning and refining your skills. Assess your needs, know your options, and learn how to negotiate.

Assess the best small business loan program according to your eligibility and actual needs by looking in’s reviews of small business loan programs.

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