The world belongs to entrepreneurs. Statistics show that even the COVID-19 pandemic could not stop the entrepreneurial spirit. If you’re an entrepreneur, you may have been considering firing up your business lately.
But do you have the money?
While the entrepreneurial spirit is the American dream, it can’t get you by on its own. You need a certain amount of money to start up your business. Thankfully, there are many business loan providers out there willing to provide you a loan.
This article will walk you through some of the questions you need to ask yourself when looking at startup business loans.
What Do You Need a Loan For?
First things first, it’s time to get specific. Of course, you need money to start your business, but both you and your loaner should know what the loan will look like in reality.
Ask yourself a few questions:
How Much Do You Need?
At the end of the day, this comes down to a game of over/under. You shouldn’t borrow too little money, because then you won’t be able to reap any of the benefits for your business. By the same token, you shouldn’t borrow more money than you need, because then you may have trouble paying it back.
A good idea to figure out how much you should borrow is to draw up a plan. This will assure that you don’t overshoot and get in over your head, while also making sure you borrow enough to make a difference.
What Are You Using it For?
Unfortunately, “starting a business” isn’t specific enough for most loan providers. When applying for a loan, you should know specifically what you’ll be using the money for.
Once again, a good idea is to draw up a plan. Figure out your budget for each part of your business before you ask for a loan. This will make you more likely to receive a loan, and be up beneficial for your long-term plans as a business owner.
A lot of startups are looking for loans. To get yours, make sure you get specific about what you need and what you’ll use it for.
Are You Already in Debt?
For the benefit of yourself and your loan provider, you’re going to need to have a serious conversation with yourself about debt. If you’re in debt in this country, you’re not alone, but it may mean that it’s not the best idea to take out a loan right now.
Are You High-Risk?
It’s not only a bad idea for you to take out a loan where you’re already in debt, the lenders won’t like it. If you have a bad credit score, you’re considered high-risk in the world of lending, which means you’ll be less likely to receive your loan.
If you’re in debt, taking out a loan is not be the best idea. Before taking out a loan, run a credit check and figure out if your credit score would make you considered high-risk.
What Are the Types of Startup Business Loans?
If you’re taking out a startup loan, there are several different types of loans to consider. Knowing the options that are out there will help you make your plan and improve your chances of success.
If you’re looking for a loan to finance a piece of equipment, consider an Equipment Financing Loan. Equipment Financing Loans are usually low interest and save you money upfront on expensive equipment. If you’re leasing your space, why not lease your equipment?
If you’re considering a long-term loan, consider an SBA Loan. The U.S. Small Business Association (SBA) provides partial guarantees loans that lenders make to small businesses.
SBA’s are often taken by people who can’t qualify for more traditional bank loans. However, don’t be fooled, because they do still want proof of strong credit history.
Some people choose to take out personal loans and use them for their businesses. If you can’t qualify for other sorts of loans but have a good credit history and a good plan, this is an option for you.
However, this option cannot be used for higher amounts of money and should be handled with care. Defaulting on a personal loan could mean a lot of trouble comes down on you.
Someone who’s financing the purchase of a physical space — like an office, shop, etc — should consider a commercial real estate loan. In this type of loan, the building acts as collateral for the loan, and you’ll get to keep it as long as you’re able to make your payments.
Banks provide real estate loans with lower interest rates and long-term payment plans, but often they can be hard to qualify for. If you don’t qualify for this traditional type of loan, a hard money business loan is an option. Hard money business loans don’t focus on your history as much as what you can put up for collateral.
Should You Take Out a Private Loan?
When people think of loans, they think of banks. As you can see above, this isn’t the only option. If you don’t qualify for bank loans, private loans may seem like your only option.
Since private lenders want proof of collateral over credit score, you’re going to want to make sure you’re able to pay them back. Develop a financial plan to stick to (and make sure you stick to it) if you’re going to take out a private loan.
If you’re looking for a hard money loan, choosing the right lenders is imperative. PB Financial Group is a trustworthy group we found of private money lenders, who specialize in financing hard money commercial real estate loans.
When taking out a private loan, make sure you make a plan and deal with people you trust.
Start Your Business
Though we’re living through a global pandemic, the American entrepreneurial spirit lives on. Once you’ve considered how much money you need, what you’re using the money for, if you’re high-risk, what the types of startup business loans are, and whether or not you should take on a private loan, there’s nothing stopping you from starting our business.
Now that you’re informed, it’s time to start your business and grab your slice of the American Dream.