Best Loan Options for Startups and New Businesses

You’re not alone if you’re trying to secure startup funding for your business. Looking for loans when your business is just starting can seem hard and even worrying. But the good news is that you have many options when you’re looking for startup funding.

Many lenders regularly lend to startups. Some government-backed initiatives aim to ensure that startups and new businesses can get the funding they need at reasonable rates and terms.

Let’s go over the best loan options you have at your disposal.

What Are Startup Loans?

Startup loans are business financing products meant for businesses in their earliest phases. The lender provides funding that you use to cover your earliest business expenses. You then pay the loan balance back, including interest, plus any associated fees.

These aptly named loans aren’t just for general “startup” expenses. Some lenders provide loans in smaller sums and have manageable terms to help your business build its credit.

Young businesses often take loans to cover crucial early expenses like:

• Acquiring or leasing property.
• Stocking their initial inventory.
• Purchasing necessary equipment.
• Covering initial working capital and payroll.

New Business and Startup Loan Options

Here are some of the options you have for kickstarting your business operations.

One: Government-backed Business Startup Loans

The governments of many countries offer programs to match certain business borrowers with loans that meet a certain standard. The government doesn’t necessarily loan the money. In some cases, such as the US SBA, it just gives its stamp of approval and a partial guarantee for the loans that qualify for these programs. In other cases, there is more direct involvement.

One example is KfW loans. In Germany, in addition to alternative lenders offering business loans, the KfW (Kreditanstalt für Wiederaufbau) offers a startup loan with low interest rates. Their flagship KfW ERP Startup Loan provides businesses less than 5 years old with low interest rates on term and working capital loans. You can receive up to €25 million if you qualify.

In the Netherlands, several institutions offer programs for SME and startup working capital and other expenses. Innovation Fund for SMEs (MKB+) and MKB-Krediet offer smaller business loans topping off at the low hundreds of thousands of Euros. There are also many alternative lenders offering unsecured business loans.

Programs like these offer ideal resources for startups and businesses with little credit history. We highly recommend checking whether you and your business qualify for them and other programs like them.

Two: Equipment Financing

Equipment financing describes a business term loan with the equipment serving as collateral. These arrangements work well for businesses of all sizes, especially young businesses that need startup funding for expensive equipment.

With equipment financing, you don’t need to find alternative assets to collateralize. You also retain ownership of the equipment as long as you repay; you have fewer worries and can often get decent rates. 

Because equipment financing is so straightforward, gaining funding is usually a quick process. Repayment terms are normally flexible and long-term.

Three: Business Term Loans

Business term loans are lump sums lent to cover specified business expenses. The longest-term business loans with the best rates normally come from traditional lenders like banks and credit unions. But there are also many alternative lenders that offer fast funding, even to poor-credit borrowers.

Business term loans are similar to personal term loans, but business financials and other considerations are applied in addition to personal credit. You will normally have to provide collateral, but with that, you can secure large sums and have flexibility in repayment terms.

Four: Business Credit Cards

As long as you have a personal credit card, you’re familiar with how business credit cards work. While their interest rates are normally high, they offer convenience, expedience, and security that they offer.

You can use a business credit card quickly if unexpected and important expenses arise. If you use them carefully and align them with your cash flow, they can provide your startup with short-term solutions to funding issues.

Five: Personal Loans

Startups and very young businesses often have trouble proving creditworthy enough for business loans. But you can still qualify for a personal loan backed with equity.

The main advantage of a personal loan is that your qualifications are based on your existing personal credit history. Having good credit puts you at an advantage, and funding should be easy to find.

Six: Business Line of Credit

Revolving credit provides the flexibility that many startups need. Instead of taking a lump sum for a set expense, you can just take what you need when you need it.

Similar to a business credit card, a line of credit provides continuous funding in amounts you have complete control over. You then just pay interest on the credit you pull, not your available limit.

This option isn’t good for very large sums. But it gives you the flexibility to get your business started while covering various smaller expenses that can add up.

The post Best Loan Options for Startups and New Businesses appeared first on Entrepreneurship Life.