Getting Loans For Startup
The main difference between a business idea and its actualization is the amount of money invested. The amount of capital will play a major role in determining the scope of the business where most big businesses require lots of cash as capital.
There are many ways of sourcing for capital such as the following; using your own personal savings or franchise to finance the business, fundraising from your neighbors, friends, family and other well-wishers or borrowing in the form of loans. The first two options cannot be enough especially when you’ll need continuous financial support or a large sum of money. If you choose to go with the last option, here is what you need to know about getting loans for your startups.
Consider the amount of collateral involved
For every loan you borrow, the lender always asks for some collateral to ensure that you pay back the loan. For your startup, it is advisable to consider a loan in which you can pay 100% collateral. This will mean that in case your business goes under, you will be able to pay back the loan. Collateral can be anything from personal savings, deposit, business inventory and home equity among other hard assets.
Franchising? Make it SBA-approved
If your business involves franchising, always go for the option of an SBA-approved franchise.
This is because using the SBA-approved option will largely streamline the process of approval making it easier and faster for you to acquire the loan. On the other hand, using a franchise that is not SBA-approved will largely lengthen the approval process, and you might not even be approved in the end.
Lease instead of buying
If the option of leasing is available, always go for it instead of buying. This is because leasing is temporary while buying is permanent. Leasing is always a cheaper option, especially for a short-term business. Leasing will also buy you some time before you get enough cash to buy the equipment.
How much do you really need?
How much cash do you really need for the business, and how much do you really need to borrow? Before approaching the bank for a loan, it is advisable that you really do your math to establish the exact amount of money needed. This will prevent you from borrowing too much money or less than what you need. It will also promote accountability and minimize wastage of cash.
Never borrow without a payback plan
How do you plan to pay back the loan in case it is approved? Never borrow a loan without a concrete plan of how you are going to pay it back. You should have a plan of how the money will be paid back (including the interest) no matter the outcome of your business.
Running a B2B? Consider borrowing by “factoring.”
It is easier to get finances for a B2B as compared to a B2C kind of business. This is because writing invoices will make you eligible for advance payments if you “factor” them as you await other cash and incentives. A factor will be able to collect the full amount upon delivery of the product, deduct a transaction fee and then you will receive the remaining balance.
In conclusion, once you have decided to go ahead with borrowing the loan, it is now time to choose the right company. Do a background check on the company (For example, you can search for Best Egg personal loan review) and make sure it is legit. Also, consider the interest rate (choose the lowest rates) and the payment options available.