Is it hard to get a startup business loan?

These characteristics make personal loans an excellent option for startups without established revenue or financial projections. However, some personal loan lenders don’t allow borrowers to use funds for business purposes, and borrowers are personally liable for repaying personal loans-though this is also the case for many business loans. Finally, commingling business and personal loan funds can complicate bookkeeping, tax and legal matters.

Personal Savings

For some, borrowing is not the only way to finance a new business. Business owners who have sufficient personal savings can use those funds to start or grow their businesses. Not only do personal savings eliminate the need to pay origination fees and interest, but using cash to finance a startup can help a business owner avoid giving equity to investors.

That said, investing personal money can be a risky move and may result in a business owner losing their savings if the business fails. Many startup founders also lack the spare cash to invest in their ventures-much less enough to start or grow a business without additional funding.

Friends and Family

Alternatively, startup owners ily to get their business off the ground. Borrowing cash from family eliminates the need to meet traditional qualification requirements, but the approach does come with its own challenges. Before asking someone for a loan, a business owner should consider whether they’re comfortable entering into that kind of relationship.

Borrowing money from friends and family can complicate existing relationships, so it’s important to ensure all parties understand the terms of the loan. payday loans online TX To reduce future conflict, startup founders should get the loan agreement in writing, including the loan amount, interest rate, repayment terms and other factors.

Crowdfunding

Crowdfunding offers startup founders a way to raise funds for their business without having to borrow from a traditional financial institution or friends and family. Business owners can start a crowdfunding campaign using an online fundraising platform like Kickstarter or Indiegogo.

Once the campaign is set up, users can donate funds that become available to the business at the close of the crowdfunding round. The business owner doesn’t need to meet any traditional qualification requirements, and donors do not receive any business equity in exchange for their generosity.

Frequently Asked Questions (FAQs)

Getting a startup business loan can be more difficult than getting approved for financing as an established business. This is because most lenders gauge their risk of borrowing based on the financial stability and history of an applicant’s business. When considering a new business’ application, financial institutions must instead base lending decisions on business plans, revenue projections and other theoretical information.

Therefore, it is imperative that startups take time to draft a comprehensive business plan that demonstrates their ability to make on-time debt payments. Startup owners also can increase their approval odds by waiting to apply for a loan until after they can demonstrate established revenue.

How do I qualify for a business startup loan?

Lenders typically look at a business owner’s personal and business credit scores to evaluate whether they qualify for a business startup loan. Many startups, however, are too young to have an established credit score, and financial institutions must rely solely on the applicant’s personal score.

In addition to credit scores, lenders look at a range of documents to gauge the business’ financial stability and the risk of nonpayment it posesmon requirements include tax returns and other financial records, as well as a business plan and necessary business licenses, registrations and legal documents.

Is it possible to get a startup loan if I have bad credit?

It is possible to get a startup loan with bad credit, but it’s more difficult than for better-qualified applicants. Prospective borrowers can bolster their loan applications by developing a comprehensive business plan that specifies how the company plans to make money and describes the business’ marketing strategy. Some financial institutions also specialize in lending to low-credit borrowers, but these loans may come with higher interest rates and origination fees.

As a startup founder, you can also improve your approval odds by drafting a comprehensive business plan. This can demonstrate to lenders that the business is financially stable enough to repay its debts based on future revenue and expense projections. Lenders also may request copies of business licenses and registrations applicable to your business or industry, as well as banking information for direct deposit.

And, while loan amounts may be lower than those available through business lenders, qualified applicants may qualify for lower APRs with a personal loan than a business loan-as low as 3% for the most creditworthy applicants.