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One of the largest challenges a startup faces is securing the funding it needs to get off the ground. Most startups require some amount of seed money to get started, but without any history of credit or revenue, they can face difficulties securing a loan.
Fortunately, there are several funding options for startup founders who need cash to see their entrepreneurial ideas realized. Here’s a guide to financing for startups at all stages.
Check them out and see what fits your business best
The Small Business Administration (SBA) offers loan guarantee programs available through participating banks and other financial institutions. Some advantages of an SBA loan could include attractive payment terms, better repayment options, and a smaller down payment when compared to other traditional financing options-all of which is designed to lead to better cash flow for a startup.
7(a) small business loan programs. This is the most common type of SBA funding for startups. To be eligible a business startup must be for-profit and fall within the “small business” standards of the SBA. There are usually lower collateral requirements and longer terms in comparison to conventional funding. For more info on SBA loans, check out our Guide to SBA Loans.
Microloans. Microloans are a type of SBA loan given to startups to use as working capital for inventory, supplies, machinery, equipment, and furniture. The average microloan is about $13,000, and the maximum is $50,000. Funds from a microloan cannot be used to pay off past debts or to purchase real estate.
Both programs are best for startups that are two years of age or older and in a good revenue-generating cycle. Traditional SBA loans generally take anywhere from 60-90 days for approval and processing to finalize, with amounts of $150,00 or more being distributed at one time.
If your business is new, you won’t have a business credit history—the commercial equivalent of your personal credit history.
It’s totally normal—your business is just starting up, and you haven’t had the chance to borrow as a business yet. Don’t be discouraged, though.
Not having a business credit history just means you must personally guarantee your new business credit cards which, in turn, means you can leverage your personal credit history to secure startup business credit cards.
However, if you lack enough personal credit history, or your personal credit history is less-than-stellar, this might spell a challenge for you as you set out to secure the best business credit cards for new business.
Consider building a personal credit history with a secured credit card before setting off on your search for startup business funding.
Here are the steps typically involved with unsecured business credit lines for startups:
1. BitX pre-qualifies you based on your personal credit history, type of business, business and personal income, and business credit history.
2. Based on those same factors, BitX determines which business and personal credit cards you would qualify for that have the highest credit limits and lowest rates.
3. BitX submits applications for those credit cards on your behalf. Depending on how much financing you need, the lender may submit 10-15 applications on your behalf.
4. You receive the cards that you qualify for and can use them as your business credit line. You will get a monthly statement for each credit card and must make a minimum payment for each. You’re welcome to make more than the minimum monthly payment, and any unpaid balance will accrue interest.
Our recommendation for startup business owners is 0% introductory APR cards. In a lot of ways, putting expenses on a business credit card with a 0% intro APR period is like using a free loan. Plus, if you have existing balances on other business credit cards, you can transfer them over to your 0% intro APR card.
Be careful, though—it’s an introductory rate. Make sure you can pay the balance before that rate spikes at the end of your introductory APR period. Also, you might need a certain credit score to qualify for the promotional rate in the first place.
1. They’re very fast to apply to.
2. They give you the freedom to borrow as much or as little as you need each month.
3. They don’t require collateral to secure the credit line.
Our recommendation for startup business owners are 0% introductory APR cards. In a lot of ways, putting expenses on a business credit card with a 0% intro APR period is like using a free loan. Plus, if you have existing balances on other business credit cards, you can transfer them over to your 0% intro APR card.
Be careful, though—it’s an introductory rate. Make sure you can pay the balance before that rate spikes at the end of your introductory APR period. Also, you might need a certain credit score to qualify for the promotional rate in the first place.
There’s an old adage that says, “you have to spend money to make money”. When it comes to owning and running a business, this adage is especially true, and even though entrepreneurs know this well, it doesn’t mean that incoming costs aren’t a source of stress. Before you can get your business off the ground, or even before you can kick off a new idea or expansion, there are a lot of upfront costs to manage. Your business needs funding. With small business grants, companies can get the push they need in order to move forward with less stress.
So, what are business grants? A business grant is money awarded to businesses in need. Unlike loans, grants don’t have to be paid off. The money is not being borrowed. There is no interest attached. Grants are GIVEN to businesses with no expectation of return.
How do Business Grants Work?
Sounds too good to be true? Truthfully, obtaining a small business grant can be a lot of work, but that’s why we’re here for you. Plus, the funds received from the grant, might be all the help your company needs in order to succeed.
Small business grants can come from the federal government, state government, local government, and corporations. Each of these sources have their own benefits, and their own draws. For example, the federal government has more grants available, but the local government is more likely to reward businesses that give back to the community. Each grant from each establishment has a specific focus, and business owners will want to find and apply to those grants that pointedly meet their needs. Unlike loans, grants can’t be spent on anything the business deems fit. Grants must be applied to the specified areas explained in the application. Depending on the company, that money may be allocated specifically to hiring fees, land, building, technology, programs, sustainability, etc.
The SBA helps businesses find funding
The Small Business Administration works with different organizations to provide federal financial assistance (grants) community resources for certain small businesses. If you can’t find any grants that fit your profile, you can see if you qualify for any of our funding programs, or schedule to meet with a counselor to talk about financing your business.
An alternative way to find money for a startup is to reach out to friends and family. While many founders hesitate to approach friends and family (because of the potential for emotional and relational conflict), it’s one of the most successful ways for early-stage entrepreneurs to find capital.
The business owner can enjoy the benefits of a low- or no-interest loan, while the family member or friend is using their cash to foster a dream and support a vision. Depending upon the relationships, it can be easier for an early-stage entrepreneur to obtain a loan from a family member or friend compared to a traditional business loan. However, it’s still recommended to have a contract and terms of agreement for both parties.
This option is especially nice for any startup owner who has access to influential contacts or family and friends that have money available for investing. As long as the business owner can prove his or her idea as a viable business and show a plan to generate revenue, a loan from friends or family members is usually without any pre-qualifications.
Things to consider when asking for a family and friends’ loan:
Crowdfunding has helped launch hundreds of businesses. While other types of funding require a certain number of years in business or a minimum amount of profit, crowdfunding allows a startup founder with a great idea to often bypass all those requirements.
What is crowdfunding?
Essentially a startup develops a well-thought out business plan prototype of their idea or service. They then pitch these ideas to the public through an online crowdfunding portal. The ideas are funded by crowds of people who are willing to invest in exchange for an exclusive gift, pre-orders, or just because they want to help. In recent years, some crowdfunding platforms (because of changes in the law) allow a business owner to offer equity in exchange for investment as well.
How it works:
The most common type of crowdfunding fundraising is using sites like Kickstarter and Indiegogo variety, where donations are sought in return for special rewards. That could mean free product or even a chance to be involved in designing the product or service.
Upside:
Crowdfunding provides another strategy for startups or early stage companies ready to take it to the next level — such as rolling out a product or service. Before, a business owner was subject to the caprices of individual angel investors or bank loan officers. Now it is possible to pitch a business plan to the masses.
Downside:
If you don’t have an engaging story to tell, then your crowdfunding bid could be a flop. Sites such as Kickstarter don’t collect money until a fundraising goal is reached, so that’s still a lot of wasted time that could have been spent doing other things to grow the business.
Here are more factors that can better ensure a successful crowdfunding campaign:
BitX Funding is your online marketplace for Startup Business loans. From SBA, start-up lines of credit, short-term loans, mid-term loans, invoice financing to merchant cash advances and lines of credit, BitX Funding is where lenders compete for your business. Our top-rated lenders focus on real-life business data and cash flow, which means you can qualify for a loan even if your credit score isn’t perfect. What differentiates us from the competition is that with a brief questionnaire our highly trained loan consultant will listen to your needs and match you with the appropriate funding. You can go at it alone and spend hours online trying to find funding for your business or you can have a one-stop experience with BitX Funding and our direct connection with the lenders.