If you are starting a business, you likely know that one of the first steps is to secure a loan. The process of applying for a loan can be extremely frustrating, especially when your credit score is not as great as it could be. But what if there was an easier way to find out which companies and lenders might offer you a loan?
What are startup loans?
A startup loan is a small business loan, specifically for companies that are in their first year of business. These loans are typically interest-free and can be up to $500,000. The main difference between these loans and other small business loans is that they have to be paid back within a short period of time (one to five years).
Startup loans are like personal loans for people just starting out. They provide an opportunity to get financing without the need to go through a bank or other large institution. This loan can be used at any time and they’re often available in amounts much larger than personal loans of the same type. There are many different companies that provide startup loans, but you’ll find the best market rates with lenders who have been around for a while and know how to work with startups.
Why get a loan?
A startup loan is a short-term loan to help you get your business up and running. This can be anything from $10,000 to $100,000 but is usually between $50,000 – $100,000. Depending on the interest rate of your loan, it can be over 20% for a shorter-term loan or lower for longer-term loans. If you’re interested in getting a startup loan, you need to have an account with an online banking institution for quick access to funds.
Getting a loan can be one of the best things you do to help your company grow. Not only does it allow you to have more working capital, it also helps to generate financial backing and gives investors peace of mind that your business is financially sound.
What are the eligibility requirements for a startup loan?
In order to be eligible for a startup loan, your business must provide a sound plan that shows the potential for growth. You also need to demonstrate that you have the upper hand when it comes to financing your project. Be sure that your company is incorporated, having a bank account and opening up business in advance.
In order to be eligible for a startup loan, the company must be registered as a business and have an idea that has already been patented or is in the process of patenting. Also, companies should have a stable source of income and they need to have an accredited investor.
Which lenders offer loans to startups?
Most lenders offer loans to businesses with a good credit score. However, some lenders, like the Small Business Administration, offer loans to startups with bad credit scores. To qualify for one of these loans, you must have a good business plan, a solid management team and a low debt-to-equity ratio. The SBA offers up to 75% financing on approved proposals.
There are several types of loans available to startups. The most common type is a startup business loan from a bank or private lender. However, it’s not always possible for a company to get a loan from a bank because the banks require certain levels of capital and prepaid expenses. In these cases, startup lenders such as Kabbage come into play. They offer loans directly to entrepreneurs, offering competitive rates and often no prepayment requirements that small businesses may need in an emergency situation.
How do you apply for a loan from these lenders?
You need to be able to prove that you have a good credit score. Even though you may be starting out, there’s a good chance you will not have an established credit history. You can borrow from these lenders if your credit score is below 650.
If you can present evidence of your company’s cash flow and a plan for growth and expansion, then you should be able to get an SBA loan. However, if your business is young and has no revenue yet, then you might need to apply for a bank loan as opposed to an SBA loan. These loans are usually secured so that the lender is sure that they will get their money back.
The aftermath of an unsuccessful loan application
If you apply for a startup loan, prepare to put in the work. You will need a ton of documentation and follow up on your end to make sure that the application is being processed properly. In some cases, these loans may take as long as two months to process before they come through.
If you’re a startup trying to start a loan, you’ll need to be prepared. First of all, you should have already identified the business you want to start and what type of loan will suit it best. Next, your application should be thorough and detailed. You must also understand the lending process before submitting your application as well as be aware of what might happen if it’s not approved.