Are you a new entrepreneur who needs funding for your startup company? It’s no secret that one of the hardest struggles in putting up a business is raising capital. Let’s face it — money is the bloodline of any business and finding the proper funding method is a big challenge for entrepreneurs, especially for the beginners.
Truth be told, it is still safer and better to use your own money to jump-start your business instead of getting your resources through a loan which you will have to repay eventually with interest. However, it’s also undeniable that many startup companies rely on small business loans.
While getting a loan is one of the most common solutions to
As compared to established businesses, startups do not have an extensive business history or credit that can prove their track record in terms of managing their finances. For this reason, many financial institutions do not lend money to startup businesses because they are perceived to be “high-risk borrowers”.
If you’re planning to get a small business loan for your startup, here are some important things you should consider:
- Know and understand first what your business exactly needs before applying for a loan. By doing this, you’ll be able to determine the right loan amount you have to get. You can’t just make a wild guess when it comes to money matters like this because underestimating or overestimating the loan amount you’ll apply for has its disadvantages. Make a business plan so you can figure out the exact estimate of the funds you’ll be needing to jump
–start your business.
- Make yourself aware of the various loan products available. Do your own research first of the various startup business loan products and services you can possibly avail. It would be beneficial for you as a borrower to know first the pros and cons of each product before you make a choice. Since there are various types of business loans, getting a loan estimate from lenders together with their terms and conditions might help you in deciding on which loan you should get and which lender offers the best service. Remember that any loan is a debt and it can either make or break your business, so you better be wise.
- Check out several potential lenders in your area. From commercial banks to alternative lending companies, it would be a smart move for new entrepreneurs to make a comparison first of the terms, products, and services the lenders offer before they make a choice. Remember that if you want to get the best deal, you have to know and understand all of your options.
- Know all the requirements and make sure to accomplish them. It is your responsibility as a borrower to provide the necessary documentation required from you by the lender. For sure, you don’t want to make the loan process more complicated and lower your chance for approval just because of your negligence. Remember that the requirements may differ from one lender to another. There are many factors that affect what type of documentation entrepreneurs have to provide and these include the size of the loan and your current financial status.
- Improve your personal credit score. Since startup companies do not have any business history yet that lenders can use for evaluation, most lenders would consider an entrepreneur’s personal credit score as a reference. For this reason, take care of your own credit score.
- Always have a back-up plan. As previously mentioned, getting approved for traditional small business loans for startups is difficult, though not impossible. Entrepreneurs should be wise enough to know and prepare their other options in case commercial banks decline their loan request. There are non-bank lenders as well as micro and alternative lenders that may still cater your funding needs. Some of the non-bank financing options available for startup businesses include Equipment Financing, Home Equity Loan or Line of Credit, Crowdfunding, and SBA loan.
While the final decision on loan approval still depends on the lenders, there is no doubt that entrepreneurs who are well-prepared are more likely to get their loan requests granted. Always remember to make a solid business plan first before applying for a loan.