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Start up Business Loans How to obtain them?

March 3, 2015

Businessmen find it very difficult to obtain business loans from commercial banks. The banks will not come forward to take up the risk of providing loans to new businesses. The newly started businesses are bound to undergo very tough times financially due to various reasons. When there are severe setbacks during the initial years, the businessmen will be left with no other option but to wind up the venture. When the business is very risky, the banks will not provide loans. The banks consider the start up businesses as great risks and as a result they are not ready to suffer losses by way of providing loans to such risky businesses. One can find out alternate sources for start up from the internet. However, the lenders other than banks may charge higher interest rates for these loans. Moreover, the borrower will be asked to provide collateral and to offer some equity to ensure payments. Before applying for the loan one should gather all relevant information pertaining to the loan.

How to mobilize funds?

When the commercial banks had turned down the application for start up business loans, one has to approach the various other sources that provide loans. The special purpose loans offered by Small Business Administration, social lending agencies, micro-lenders and Credit Unions are some of the other sources for startup loans. The small businesses may try to get credit from their suppliers so that they get more time to pay for the supplies. By way of making a minimum payment every month they can meet their requirements. Business Credit Card is of much use to the small businesses in the initial stage. Apart from meeting the urgent cash needs the business credit card enables them to maintain business credit and also to pay the monthly bills. One must ensure careful as well as wise using of the credit card.

Raising capital for business

Adequate funding is vital for the success of a business. In case of startup business, one has to identify the methods to raise capital without which the business can neither survive nor grow. There are different sources for small businesses to arrange the finance. Loans from SBA, other small business loans, grants, etc. are available for the startup businesses. Debt and Equity Financing include borrowing money and having equity to pump cash into the business. Small business grant is a boon for businessmen with limited funds. The entrepreneurs must bear in mind that the personal credit history of the owner of the business is of great significance while applying for the small business loans. The Small Business Administration provides neither grants nor loans directly. They help the startup business to obtain loan by offering to act as guarantor while borrowing money from the lenders.

Credit Unions and Social Lenders

The local Credit Unions provide startup loans for the small businesses. These are private financial institutions and normally they are more flexible when compared to commercial banks in sanctioning loans. Small businesses that are in need of startup loans can approach the local credit unions. The interest rates of credit unions are lower and they give preference to smaller businesses for providing loans. As per existing rules the credit unions are not supposed to provide loans above 12.5% of their assets. However, they manage to provide business loans. The credit unions also provide loans for which the SBA acts as

guarantor. For those who require startup loans for smaller amounts, the credit unions are the best sources.

The Social Lenders also known as Peer-to-Peer consist of individual lenders who are ready to provide loan for small businesses. Their interest rates are comparatively lower thanks to lower operational costs. However, the rate of interest is decided based on the credit rating of the borrower as well as the collateral he can provide.

Micro Lenders

The individual business men who find it too difficult to get loan from the banks can approach the Micro Lenders for small amount loans. Most of the Micro Lenders are non-profit organizations and the amount that they provide as loan will be sufficient for the startup requirements of small businesses.

How to avail startup loans without hassle?

Getting business loans is often a difficult task for small businesses. It will be more difficult when the overall economic situation is not favorable. Securing finance for business is normally a troublesome affair. The banks or the lending agencies normally consider the applications for business loans only if the company has a strong financial status for 2 – 3 years. A good personal credit record also is necessary to be eligible for the loan. However, the lenders whose main business is to provide startup loans to small businesses make it much easier to avail the loans. However, even for securing these easy loans one has to fulfill the following requirements:

  • Those who have own home can project that asset as security
  • When the business is run by a group of individuals, each one may project his assets in order to obtain the maximum amount as loan
  • Property, cash, vehicles, Bonds and shares can be included in the list of assets. When asset value is higher, bigger amount can be borrowed
  • The borrowers may produce the tax returns of previous years to prove that they have an impressive income record
  • Application for loan without clearly mentioning the purpose is likely to be rejected. The borrower should clearly mention how the loan amount will be utilized

Getting qualified for small business loans

Those who apply for startup loans to run their new business should establish that the company has a positive credit. Positive credit makes the business credit worthy thereby increasing the chances to get the loans. When the applicant is able to provide a cash flow statement of his business that proves that the business generate sufficient funds to repay the loan, it is easier for him to get the loan. While applying for the loan the business must have a credit score above 700. In case the credit score is below that level, immediate steps are to be taken to improve the score.

A comprehensive business plan must be ready while applying for the startup loans. The business plan must include business carried out by the company, estimated costs and income and purpose of the loan. Each individual lender has his list of requirements for sanctioning loans. Hence prior to applying for the loan, the borrower may get the list of requirements and ensure that his application complies with all the requirements in the list. The application must be complete in all aspects and must be 100% free of errors and omissions. All supporting documents that are required by the lender must be attached.

Category: Credit

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