Having your own startup business sounds like the first step towards the realization of your dreams. However, the reality might not be as smooth and easy; as you have to make major decisions that not only affect you but the members of your organization too.
From finances to compliance, more often than not, you’ll have to have a hand in all aspects of the company and financially prepare to start your own business early. Startup business loans can help. If you’re looking to take one soon, here’s what you need to know, as well as some options to consider.
A corporate loan is not a simple lifeline for securing additional funding for your startup. More importantly, it’s a commitment that can work to your advantage or put your business in jeopardy–all depending on how your business manages debt.
Before applying, make sure to be aware of the pros and cons of taking a corporate loan based on the following factors:
The purpose of a loan is to borrow money, but how much business capital do you need?. As the owner of a startup business, it can help boost your working capital and help you cover your expenses such as real estate and equipment, inventory, payroll, and other operational expenses as your company finds its footing and starts generating revenue.
On the other hand, sticking with what capital you have is a good practice in budgeting and could motivate you as a business owner. Whether it’s in generating more profit or finding more creative ways to make ends meet.
If you’re confident that you can pay your corporate loan on time, it will reflect on your business credit score record. Using your loans to build a good credit score will open more loan opportunities for your company. However, failure to pay your loans on time will subject you to penalties, not to mention the negative mark it will leave on your credit history.
Furthermore, depending on the terms of the corporate loan you took out, collateral might be taken in return for your failure to pay. The lender can repossess any eligible property to liquidate your outstanding balance. There is an alternative, small business bad credit loans are still available.
By taking a corporate loan, you can keep full ownership of the company instead of looking for investor financing, whose terms usually include partial shares in the company equity. If you wish to maintain full rein over the business, make sure to consider this deeply. Furthermore, by not giving in at this early stage of your start-up, you’ll have more freedom to choose your partners and investors later on.
The options listed below are especially great for start-up companies because they are accessible, have a faster processing time compared to traditional bank loans, and work even for business entities without established credit histories. See what each option offers and find the best type of corporate loan that suits your needs.
Banks remain the conventional and traditional providers of loans. They are trustworthy and registered with the government, they have multiple and accessible branches, and most of them are accessible online or through their respective mobile apps. However, banks are more scrupulous than most of the options listed below, which could explain the long approval times and the unusually high rejection rates.
For starters, you need good a credit score to even have a shot at a corporate loan from a bank. Then, you’ll usually be required to present relevant business documents including, but not limited to, your business plan, tax return records, current reports on tax liabilities, and more. This, on top of the credit history they’ll pull on your business from any of the major credit agencies. This makes it difficult for new businesses without sufficient history to get approved for a loan.
The Small Business Administration (SBA) is an autonomous government agency specifically created to support small businesses, helping them take off the ground and get the need they help to thrive. However, it’s important that the SBA is not the one who has the funds and lend them to owners of start-ups and small businesses.
They act as a guarantor that connects business owners with lenders. They also act as a guarantor, depending on the type of loan you have, up to 85% of the loan amount. Since the government guarantees a part of the loan, it’s an incentive for most lenders and helps persuade them to accept borrowers with poor credit scores or insufficient business credit history, like start-up companies. One type of SBA loan, the Community Advantage Loan, is an option targeted at small businesses located in underserved areas.
For a lot of small business owners, credit unions are a great alternative to traditional banks. A credit union is a voluntary cooperative that operates on a nonprofit basis. Controlled and managed by its members, they also earn money by lending. However, credit unions have notably lower operational costs compared to traditional banks, not to mention that they’re most exempted from income taxes due to their non-profit status. This leads to incredibly lower interest rates and processing fees.
To make sure you enjoy fast and convenient approval from a credit union, the common requirements are membership and a detailed business plan. Most credit unions today, however, offer fast membership approvals and even approve loans on the same day.
There’s a lot of private lenders and lending platforms that can provide different loans, from quick cash advances to amenable corporate loans. Additionally, they’re the most convenient option and work best if you’re running out of options and in need of fast approvals and flexible payment terms. More importantly, a lot of private lenders have the ability to overlook bad or still-nonexistent credit history–something rarely available with the other options on this list.
In terms of convenience, most of them have now put up websites or mobile app where you can apply and submit the requirements asked of you. There are even private lending platforms whose applications can only take 15 minutes or less and can get you approved in as fast as 24 hours. However, make sure to thoroughly review the offers before signing on to make sure that you find terms and rates that work for you.
Making careful and informed decisions before taking out a corporate loan will definitely provide the support that your start-up business needs. Not only is it a temporary solution for your financial mistakes that put business are risk, but it can also help propel your business to a more advantageous position together with its gradually increasing revenues. Make sure to do your due diligence in choosing the corporate loan offer to take, and stay responsible as you attend to your responsibilities as a borrower.