Congratulations on starting your business or choosing to start a business, it can be a rewarding and exciting adventure but it is not for the faint of heart. Don’t despair, there are over 28 million small business owners in America so although the road ahead may seem difficult, you are not alone.
Anytime you have a demographic as large as 28 million people, there will be a plethora of lenders with loan programs to accommodate it. The problem startup business owners run into is that most business lenders won’t lend to a brand new company. But you have a great idea right? Maybe you even bootstrapped your business’s launch already by using personal funds, borrowing a few dollars from friends and family or maxing out your credit cards; isn’t that worth something? Sure it is! This article will give you two solid options to help finance your business startup, so read on.
Show Me the Money
You’re reading this article so you’ve likely discovered that the options to finance a business startup are few and far between. Some lenders will advertise business startup loans but the fine print reads a minimum time in business of one year (doesn’t sound much like a startup loan). So where can you find a real business startup loan?
The best method to fund a business startup is with SBA 7(a) financing (we won’t bore you with all the details since you can read about SBA loans here). Although the SBA will guarantee business startup loans made by SBA lenders, you will have a tough time finding a lender on your own that will provide one. Fortunately, our recommended SBA lender Fountainhead offers business startup loans.
Who Can Qualify?
Although Fountainhead provides business startup loans, not every new venture will be eligible. After all, the fate of a new business is uncertain and many businesses fail very soon after starting, so Fountainhead will do its due diligence. Fountainhead will consider funding business startup loans from $200,000 to $5 million for most SBA eligible businesses. Interest rates will range from Prime + 1.75% to Prime + 2.75%, terms will be amortized over 10 years and there will be no prepayment penalty. When evaluating business startup loan applications, Fountainhead will be looking for a few very important things:
- Collateral: This can come in the form of commercial real estate, investment residential real estate, your home, equipment or heavy machinery. The more collateral you have, the better your chances of approval.
- Strong Credit: A high personal credit score will put you on the best footing for approval. Although Fountainhead’s minimum credit score is 650 for its SBA 7(a) program, borrowers with credit over 700 are preferred for a startup loan.
- Solid Business Plan: Fountainhead prefers to provide startup financing for SBA approved franchises but non-franchise businesses will be considered. Whether your startup is a franchise or not, be sure to have a well articulated and detailed business plan written up. Make sure your business plan includes pro forma financials since projected income will still have to meet the firm’s debt-service coverage requirement.
- Experience: No matter what type of business you are starting, having direct or related industry experience is a must. Being able to demonstrate a track-record of success owning, or working for a business similar to the one you are starting, will go a long way to help Fountainhead approve your startup financing.
Isn’t There an Easier Way?
The simplest way to get financing for your startup is to get the ball rolling on your own. The reason you’ve read a lot about getting your business going by using your own funds, personal credit cards or borrowing from friends and family, is because they are all viable options. However, If these are not options available to you, then Strategic Capital may be a great fit. Strategic Capital offers a startup line of credit to help get your business off the ground. Before applying, it’s important to know that the primary business owner must have a credit score that exceeds 680, and low revolving credit balances. Since there are no business financials to review, Strategic Capital will underwrite your personal credit more stringently when evaluating you for business startup financing.
If you can just get your hands on enough capital to get your business operational and generating revenue for at least 3 months, then you may have another great option. Our recommended business credit line lender Fundbox offers cash-flow based financing from $1,000 to $100,000 for businesses in operation for as little as 3 months. Since a startup is technically considered a business in operation for less than a year, this certainly qualifies as startup financing. There are very few businesses Fundbox won’t lend to and Fundbox has no credit score minimum, no collateral requirement, no experience requirement, and no business plan or paperwork of any kind is required (just a business bank account or accounting software). Fundbox is also super affordable, finance fees start at only 0.4%, there are no junk or origination fees and no prepayment penalties.
There are a ton of reasons why having a business credit line in place is a great idea, but partnering with Fundbox will give your young business access to revolving capital that will help turn your startup into a burgeoning enterprise.
It would be great if anyone with a neat idea could go online and get a big loan to start a business, but that just isn’t reality. If you have a solid plan and the collateral, experience and credit score to back it up, then Fountainhead is a great option to help you get your business off the ground. For everyone else, utilizing personal funds and credit cards to get your business cash-flow positive for 3 months and then reaching out to Fundbox, may be your best option.