One of the biggest challenges for a newly-established business or a start-up is obtaining funds for growth and sustenance during the initial phase. A small business loan for start-up can go towards things like purchase of equipment, supplies, machinery, inventory, etc. To access working capital for your new business, you need to start hunting for the right start-up loan. As today there are infinite amount of business financing options, you need to know the pros and cons of each before picking the one that suits your requirements the most.
Where to Find a Small Business Start-up Loan?
You may have already discovered that for start-ups, the low-cost options are usually not easily available as businesses without being at least 3 years in operation, are unable to sustain the required company credit score, thus deemed not credible enough to be financed by banks. But, all hope is not lost. To help you get started, here are 8 reliable options to obtain a business start-up loan.
- Startup Business Loan
Not every bank or NBFC would be prepared to lend to a new business. However, you may find certain organizations, private lenders, or government schemes oriented towards providing start-up business finance. Government schemes for small businesses are particularly supportive if you belong to rural area and have plans to develop rural sector through mechanization, farming, agriculture, cooperative units etc.
Micro-lenders are basically non-profit organizations, which provide small businesses the opportunity to obtain finance in small increments. However, they may have few eligibility criteria, such as the business must be at least 6 months old, credit score should more than 575, necessary documentation etc. Micro-lenders are also keen to offer finance to home-based and online businesses.
- Business Credit Cards
A business credit card is a viable alternative to start-up business loan and helps you in getting off the right foot in segregating business and personal finances to establish a business credit. The issuer of the credit card will consider your personal credit score along with combined income from business and personal front.
Most business credit cards come with sign up bonuses and great rewards. Try to grab a 0% introductory financing offer, which enables you to purchase and carry a balance for 15 months or less, without paying any interest while your business is still running.
You can always try to raise funds for your business venture. The campaigner has to share the business plan, objectives, and future insights with a large group of people so as to convince them to make multiple donations or sponsors, which will eventually lead you to reach the desired financial goal. The campaigner needs to share the updates on the business from time-to-time to with the audience to encourage the inflow of donations. However, these crowfunding campaigns should be backed with a lot of marketing effort, since more the number of people involved in donating or sponsoring, better is the chances of you reaching your financial goal, sooner.
The crowdfunding platforms also allow individuals and firms to lend to start-up businesses. The loan comes with proper terms and conditions, and you need to make timely repayments. The interest rate is usually higher than bank business loans, but you can keep a lookout for a suitable deal.
- Equipment Financing
NBFCs and banks are known to provide businesses loans at lower rates if you have a good relationship with them. However, for a large majority of start-up businesses, traditional business loans may not be the best alternative. As financial institutions have strict lending standards for new businesses, you can look for equipment financing instead. Equipment financing is designed to help businesspersons with purchase of inventory, machinery, etc required to operate a business.
Equipment loans are like conventional loans and require monthly repayments over tenure. The condition applied is that the proceeds from the loan should be utilized only for the purchase of machinery or equipment. These equipments may act as collateral for the loan, thus the banks and NBFCs find it easier to offer equipment loans to start-ups.
- Corporate Financing
Several large-scale businesses could be interested in lending to small businesses or start-ups. But these companies will have their own terms and conditions. They may expect you to repay by means of sharing profit or promoting their business in some way through your business. There could be n-number of reasons why a big-sized corporate may want to fund your start-up. Before applying for a corporate financing, make sure you are prepared with a strong business plan so as to convince the sponsor to invest in your business or help with financial support.
- Invoice Financing
If the customers pay you via invoices, then invoice financing is a great way to avoid cash flow problems, caused due to long invoice cycles. It may be an expensive option compared to traditional loans, but it is a speedy and reliable alternative to start-up business loan. There is minimal paperwork involved and you can get the funds in as less as few hours. Mostly, the businesses that are eligible for invoice financing should be at least three or more months in operation.
- Soft Loans
Personal funding is also a great option, and this is why it is here on the list. Not always a bank or NBFC would be eager to lend to a start-up, but you can always seek soft loans from family members and friends. However, you need to be careful when securing soft loans. Calculate all your expenses, costs, and see to it that you do not run out of money to support yourself or the businesses, and make sure you are strict about your spending habit, and repay the person in time, as promised.
There could be a lot many people who may try to scam you, thus beware of such incidences. Never share your business ownership with someone just because they ask for that in return of the funds they provide you. You may choose a business partner who also acts as a sponsor, only if you trust him/her enough.
The above-mentioned start-up business loan options and alternatives can certainly aid you in securing finances you need for your newly established business. Tread with caution and check for best offers on business loans from different sources, before selecting one for your needs.