small business funding

How Local Startups Can Leverage Small Business Funding

There are many small business loans available for startups. Learn more about the different financing options and how you can get a startup loan for your business.

There’s a bit more that goes into running a business than a million-dollar idea and an endless supply of Red Bull. Profitability is the metric of success and it takes money to make money – especially when you’re first starting out. Many new business owners are excited to get their big ideas off the ground and their products into the hands of their customers. However, without the right amount of working capital, it may be a struggle to keep daily operations afloat.

Depending on the business industry, you will most likely face different startup expenses, but most companies will need some sort of equipment and supplies, inventory, office space, communications and collaboration technologies, licenses and permits, IT support, payroll, accounting, professional consultants, advertising and marketing, and a website to reach customers.

Much of what dictates a company’s future longevity has to do with the planning process, but if you don’t have the required funds, your startup may never leave the ideation stage. Acquiring the right amount of capital may be tough to meet alone or with bootstrapped funding. The good news is that there are many options for startup financing available that can help kick things into gear.

Small business loans for startups

Starting your own company can be a daunting but rewarding process. While having a solid business plan is a crucial step, financing is one of the most important elements a company needs to succeed. Small business loans can go toward initial expenses to help get your startup off the ground,  things like inventory, production equipment, real estate, payroll, etc. When pursuing startup lending for your business, it’s important to note that there isn’t just one loan that classifies as a “startup business loan.” This means that there are a variety of financing products available with limited – or no – business or credit history.

How local startups can leverage small business funding

  • First, determine how much money your business needs.

Before you apply, it’s important to consider how much capital your business needs to open its doors. Not only should you calculate the cost of one-off expenses, such as office furniture and signage, but you should also consider reoccurring or ongoing expenditures, such as inventory, payroll, leasing, taxes and utilities. Often, new business owners rely on opening sales to keep their business out of the red, but heavily depending on business revenue right away is a risky strategy. Begin by calculating at least six months’ worth of expenses – one-off and reoccurring – to get a sense of how much money you’ll need to borrow upfront.

  • Check your credit report.

You should also consider checking your personal credit report before applying. Since your credit score is one measure of your financial health, knowing what your credit score is and what you’re doing to influence it can help gauge your business approval odds. Since it typically takes at least three years to establish company credit, your lender will most likely be taking a peek at your personal credit history. If it’s necessary, take some time to improve your credit score before applying for a startup loan as it may greatly influence the outcome of whether you are approved. You can review your credit records through a major national credit bureau such as Equifax, Experian or TransUnion. While reviewing your report, you should be looking out for credit score detractors such as late or missed payments, high credit card balances and collections.

  • Review your business plan.

Your lender will most likely require you to submit a business plan as part of your loan application packet. Banks and other lenders need to know you’ve planned to create a viable and sustainable business that will be successful enough to be able to pay back the loan. Although business plans are a significant component in helping lenders assess a startup’s viability, a well-executed business plan can also serve as a road map for you to ensure your business is profitable. A complete business plan should include a cover page, executive summary, company description, market plan and analysis, organization and management, service or product description, market and sales, forecast of financial projections such as sales and profits, funding request and appendix. When creating your funding request, it’s important to clearly itemize why you need business financing, what amounts you’re requesting (present and future), as well as what the amounts will be used for.

Small business funding for startups

  • SBA microloan: The Small Business Administration’s (SBA) microloan program offers loans of up to $50,000 for small businesses who are just starting out or looking to expand. SBA microloans are administered by nonprofit community lenders and are typically easier to qualify for than other loan options. Generally, microlenders and nonprofit lenders focus on serving traditionally underserved small business owners, as well as small business communities that are struggling economically. By qualifying for an SBA microloan, you can then grow your business and establish better credit, making it possible to qualify for other types of loans when you’re ready to scale up.
  • Asset-based financing: Asset-based financing is a specialized method of providing companies with working capital by using assets such as accounts receivable, inventory, machinery, equipment or real estate as collateral to secure the loan. Asset-based finance lenders tend to favor liquid collateral that can be turned into cash in the event you default on a loan payment. This kind of loan will require a strong business plan proposal in order to ensure you and your company will be able to meet payments.
  • Line of credit: A line of credit is a flexible funding option that can be accessed by small business owner startups as a kind of revolving capital that works similarly to a credit card. Your business will be approved for a set amount of credit that then allows you to draw on that amount when needed, only paying interest on the balance that you owe
  • Business credit card: As the owner of a new company, it may make good sense to consider using a business credit card for company expenses. Not only can it help you keep personal and business finances separate, it can also come in handy covering upfront expenses while building company credit.

Apply for a business startup loan

Once you’ve narrowed in on the right startup funding option for you, it’s time to apply. The application process will usually vary based on the loan option you choose. If you plan on applying for a more traditional loan, such as a microloan or line of credit, you will most likely be asked to complete an application with basic personal and business information while also providing certain documents such as:

  • Personal credit score and credit report.
  • Financial business plan.
  • Copy of your commercial lease.
  • Business bank account statements or financial statements (if applicable).

If you plan on applying for asset-based debt financing, you will need to provide documentation regarding equipment you are looking to purchase and be prepared to offer collateral, sign a personal guarantee or maybe even provide a cash down payment.

Business credit cards have a very simple application process, only requiring your federal tax ID or your Social Security number.

As with many things in life, preparation is key for a successful loan application – particularly when approaching a startup business loan. Make sure you get your personal finances in order and gather the appropriate documentation before filling out the application.

Summary

Entrepreneurship comes with many personal rewards above and beyond monetary success. Building a business from the ground up comes with a huge satisfaction that every milestone is the result of your own blood, sweat and tears. However, bootstrapping your dream into reality is no easy task. Luckily, there are a variety of financing options available to help launch your new business venture.

If you have any questions or would like to speak with a business advisor about the various startup lending options available to you, call one of our small business experts at Rapid Finance today: 877-252-0827.


Verizon Small Business Digital Ready: A free resource for business skills, the latest digital tech and more.

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