Loan options for startup businessesadmin | May 29, 2019 | 6 | Loan
Whenbusinessmanis in need of money, they mostly first think of approaching banks. But if bank refuses, there is a variety of lending options other than banks to meet our different financial scenario.
Banks are of different types, offering local or online loans. There are commercial banks, online- only, saving banks and community banks. Other sources of getting loan are credit card unions, credit card companies, Payday lending companies, online loan companies, retailers and consumer finance companies.
All these lending companies have their own policies, qualifications, terms and conditions to offer to the consumer. Each is designed to fulfill different business needs and situations. Whether you need startup, equipment, inventory or real estate, they have a solution for your business either small or large.
Small business owners or entrepreneurs often need startup money to fulfill their financial needs. They may get loans that are especially designed for startup businessmen or they can utilize their savings to fulfill the money needs. Different borrowing options have their own pros and cons. So, understanding your financing needs is crucial while deciding the types of loans to opt for.
Small business lenders need to consider following points while going for loaning options:
If you have some equity, you can use it t get financing. But, it is important to consider the amount of equity you are going to pledge because in case you fail to repay, that equity will be at stake.
Cost is a very important factor not to be ignored. If you are taking a long-term loan with comparatively lower interest rate, it is going to cost you more as compared to a short-term loan with a higher interest rate. Similarly, local or online loans are cheaper and include lesser paperwork as compared to bank loans.
Personal guarantee is an important factor because if you fail to repay, the guarantor will be paying in your place.
Amount of money required:
Amount of money you require initially is an important factor to consider. If you have enough saving, then your initial cash requirements can be fulfilled from their and need for taking loan in the start will be reduced to a large extent.
All these points need to be taken into consideration to elect the best loan option.
Making a business plan before actually starting a business is a good step of preparation. Banks become a difficult option for those who are in initial step of the business. Someone with good credibility and history can get a bank loan more easily. Governments also provide funds for some startups. But you need to check if your business falls in the category that government support to finance.
A good option is to use your retirement amount in funding the business and can be used with other loaning options to startup a business. But if you have some equity like some factory, land or home, you can get equity loan against that. If will be comparatively cheaper because you have pledged your property but risk of losing that equity will always be there in case, you fail to repay.