About Start-Up Funding
You need a business to make money, but you need money to make a business… Startup capital can be the most important loan a business takes out and can greatly contribute to the new business’ success or failure. It is important to consult with an advisor to ensure you are making the best decision for your business.
With any type of financing, lenders want to see some proof that the business can repay the loan. This is where startups and new businesses are typically declined since they don’t have any financial history. Most lenders consider a business with less than 2 years in business new. Once a business has been established and operational for 2 years they will be eligible for more options and lower rates. While limited, there are some financing options available for new businesses.
Types of Financing for Start-Up Businesses
Credit Cards – Opening a business card can be a fairly simple process and give a startup business access to capital but may come with high rates and carries the risk of burying a new business under compounding interest.
Crowdfunding – A fairly new option, crowdfunding can be a great low-cost alternative to traditional loans. There are structures specifically designed for service or product industries.
Equipment Financing – One of the easiest to obtain types of financing for new businesses is equipment financing because the equipment purchased can serve as collateral. If a business owner has $200,000 in startup funds, in most instances it would be a better decision to finance equipment necessary and keep cash reserves on hand to pay for incidentals that are not easily financed.
Friends & Family Business Loan – Friends & Family Business Loans can provide startups and new business with a rate friendly option.
SBA Backed Loans – The Small Business Administration backs some loans specifically for startup and new businesses with longer terms than the other options available but will tie up the owner’s assets and may limit financing options down the road.
Requirements for new and startup businesses are fairly strict and typically require excellent personal credit.
Ownership – All owners with 10% or greater ownership will typically be required to be a personal guarantor
Bureau Scores – Personal Credit of at least 600 for the most qualified guarantor
Major Derogatories – Bureau reports stating open tax lien and judgements, unpaid collection accounts, and charge-offs/repossession may limit the applicant’s financing options.