Growing a business from a start-up into a successful venture requires vision, expertise, and commitment. However, sometimes it takes more than just these entrepreneurial qualities to succeed. Startups need access to finance for a variety of reasons. Here is a brief guide of what you can expect when you need to search for funding for your startup business.
Why Institutional Lenders Don’t Lend to Startups
Sourcing institutional funding as a startup is incredibly challenging. Most institutions will refuse to loan to new businesses with no track record due to the risk that they present the bank. Since more than 80% of startups fail, they view them as a high risk that they are not willing to expose their shareholders too. If you are intent on securing institutional finance, it may be possible if you agree to bind your personal assets in a surety agreement that the bank can use to take your assets as collateral in case the company defaults on the loan.
Where You Need to Look for Startup Finance
Finding start-up finance is not as impossible as you may think. Some reputable micro lenders will gladly take on the risk of helping start-ups secure a small business loan. Micro lenders do not need the stringent collateral requirements of the larger banks, and their business model is geared toward taking that risk. Most small business loans are approved quickly, giving you immediate access to cash as soon as the loan is approved.
#1 New Equipment Purchases
Startups require a lot of expensive hardware and data services to keep running efficiently. A small business loan will enable you to get off the ground and start operations immediately.
#2 Support Cash Flow
Cash flow is the most important part of any business. You need cash flow to pay your creditors and settle your pay roll. Without it, your business has no life. As your business expands, there will be even more drain on your free cash flow as your income struggles to keep up in the beginning. During this time, it’s best to use a small business loan to provide a form of bridge finance to get you through the phase until you build your revenue stream up.
#3 Build A Credit Profile
As we have discussed, big banks won’t lend to startups, so by visiting a micro lender and taking on a small business loan, you will be able to begin to build your credit profile. In the future, you will be able to use this as a credit track record when you want to apply for institutional finance.
When to Avoid a Loan
There are sometimes in business where a loan won’t be able, to save you. If your company is undergoing severe financial stress, then the last thing that you will want to do is apply for another loan and increase the debt burden. At this stage of the game it’s better to visit your account and you lawyer to formulate a strategy on how you can reduce your expenses and stay in business.
When you begin to review potential micro lenders for a small business loan, it’s important to do some basic due diligence on them before you sign the loan agreements. What are people saying about their service on social media? Are their rates reasonably priced in comparison to other competitors? What makes them different from the rest of the lending agents?
Visit the leading authorities in small business loans at smallbusinessloans.co and ask to speak to an expert consultant about a tailored small business loan solution for your startup.