When you’re ready to grow your business idea, not having enough capital can be a major blocker. Many startups struggle to find the right kind of business loan that they qualify for. That’s because lenders prefer to see a track record of success to ensure they’ll get their money back — something you may be lacking as a newer business. However, getting funding for your startup isn’t impossible, and it begins with a little research. We’ll break down six simple steps to get your startup the funding it needs.
1. Choose the type of loan that fits your business needs.
Most startups will have the best luck getting a startup business loan with online lenders that specialize in startup loans or have more relaxed eligibility requirements. Here’s a look at a few popular options for startups:
- Online term loans. These loans offer a lump sum of cash you repay in monthly installments. You may find online lenders willing to work with credit scores as low as 625. Plus, many online lenders operate as a marketplace, where you can complete one application and match with multiple lenders willing to work with your credit profile.
- SBA loans. These types of loans are partially backed by the Small Business Administration. SBA loans typically have more flexible loan terms and, in some cases, more flexible eligibility requirements, which makes them an attractive option for startups. However, be prepared to wait for funding, as SBA loans can take up to three months or more before you see cash in your account.
- Equipment loans. Equipment loans can be used to purchase expensive equipment like ovens, commercial trucks, medical devices and more that can help you grow your business. The loan is secured by the equipment itself, which may mean you’ll score lower rates compared to unsecured loans.
- Lines of credit. Business lines of credit offer a specified amount you can access as needed. You’ll only pay interest on the funds you access. Plus, once you pay back what you’ve borrowed, you can draw on your credit line again.
Your loan options aren’t limited to these loans. It’s best to hit a marketplace with your credentials and see what types of loans you qualify for and which ones fit your business needs best.
2. Decide how much funding you need
Calculate how much money you need to start or grow your new business by making a list of the expenses associated with your business. These might include rent, supplies, equipment, operational costs, marketing and more. Keep in mind longer-term expenses like hiring more employees or expanding your space.
Tally up these numbers and subtract any personal funding or money you’re getting from other sources. The number you come up with is the loan amount you’re after.
3. Check your eligibility
It’s smart to get an idea of your qualifications and how they align with the eligibility requirements of business loans on the market. This way, you’ll have an idea of what types of loans you may have the best shot at. Consider the following common variables that lenders weigh when determining whether you qualify for a loan and on what terms:
- Personal and business credit score. If your credit score is 640 or below, you may still find lenders willing to work with you. However, you’ll likely pay higher interest rates than higher credit score borrowers to offset the risk to the lender.
- Time in business. Many lenders, especially banks and credit unions, require two or more years in business. As a startup, you may not have that much time under your belt yet. However, certain loans and online lenders may offer funding to business owners with 6+ months in business — in some cases, less.
- Annual revenue. Many lenders want to see $100,000 or more in annual revenue. Again, online lenders and marketplaces may offer up loans and lenders willing to approve businesses well below this threshold.
- Personal guarantee. This means you’re willing to put your personal assets on the line to repay your business loan if your business cannot.
4. Gather documentation
What you’ll need to apply for a business loan varies by lender. However, there are a few common documents that help lenders verify your identity and business before moving you on in the loan process. These include:
- Drivers license
- Company licenses and permits
- Your company formation documents
- EIN
- Tax returns (business and personal)
- Cash flow and bank statements
But, as a startup, you could increase your chances of securing a loan by also offering a detailed business plan that shows how you’ll generate income and pay back the loan.
5. Compare lenders
Shopping around can really make or break you as a new business seeking the best deal on funding. You’ll have the highest odds of approval with an online lender. But you’ll have the best shot at the lowest rates you qualify for with a business loan marketplace. This way, you’ll be shown a list of lenders willing to work with your qualifications. From there, compare not only interest rates but lender reputation and other fees like prepayment penalties, late fees and origination costs.
6. Submit your application
Once you’ve narrowed your list of lending options to one, you’re ready to complete and submit your application. The application and underwriting process varies with each lender — most online lenders make it a quick process, some providing approval or denial decisions within minutes. From there, you can be funded anywhere from same-day to a few business days or more, depending on the loan type and lender you’re working with.
Wrap Up
If the only thing holding you back from starting or growing your business is funding, but you’re worried about whether you’ll be approved, the best thing to do is just start the process. These six steps offer a simple roadmap to financing your business. By identifying your needs, you’ll have the information you need to search for and compare lenders willing to work with you.
About the Author
Megan B. Shepherd is a personal finance editor at Finder committed to helping Americans navigate the financial world of loans and insurance. Megan’s expertise has graced the pages of Forbes, Fox, Time, Reviews.com, and carinsurance.com, adding invaluable information related to loans and insurance. Megan’s adept knowledge of financial topics has also led to contributions to reputable publications like Nasdaq and MediaFeed, where she intricately dissects and explains personal loans, financial strategies and smart borrowing tactics.
This article originally appeared on Finder.com and was syndicated by MediaFeed.org.
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