If you have a new business, you may be wondering how to get a loan to start it. There are several options, including bank loans, small business credit cards, equipment financing, crowdfunding, and peer-to-peer lending. If you have a good personal credit score and can show a steady stream of income, business credit cards are a good option. In fact, 53% of small businesses reported using credit cards to finance operations, and it is an excellent option to avoid a traditional loan.
Small-business loans
Before applying for a small-business loan, you should know how much you can borrow. Borrowing too much or too little money can negatively impact your cash flow, and will prevent you from making progress toward your business goals. Make sure you know exactly what the terms of the loan are, and how much you can afford to spend. Small-business loans require you to submit documents that prove you have the necessary assets and have an established business.
If you need up to $50,000 for a new business, the SBA offers government-backed loans that come with moderate interest rates. The loan process can take anywhere from five days to two months, depending on the type of loan you apply for. In contrast, short-term loans are best for those who need to make a quick return on their investments. You should know that you can get up to 6% interest through a small-business loan through the SBA.
Peer-to-peer lending
To apply for a loan through peer-to-peer platforms, you need to create a borrower profile, which will help determine the interest rate and repayment terms of your loan. Once you’ve created your profile, you can begin browsing and comparing available loans. Once you’ve selected a few potential lenders, you can begin the application process. The process usually takes about one week to complete.
The process of applying for and receiving a loan through peer-to-peer lending is completely online. The provider will monitor the transactions and keep track of participants. Each user must complete a form with a special rating. The higher the points, the more likely you are to be accepted. The more points you have, the higher your chances of getting a loan. And, unlike traditional banks, peer-to-peer lenders won’t charge you a prepayment fee.
Equipment financing
When looking for equipment financing, credit score and business history are important considerations. Poor credit can affect your rate, the terms you can get, and even disqualify you from a loan. In order to improve your chances of getting approved for equipment financing, work aggressively to clean up your credit. Fix any errors on your credit report, read your credit report carefully, and report any discrepancies. While bad credit can affect your options, there are several lenders that cater to business owners with poor credit.
Most business owners who turn to equipment loans don’t have a bank account that’s empty, and instead want to be able to purchase the equipment they need without depleting their working capital. This can be a good idea for businesses that want to maximize working capital, but also want to preserve it for other purposes, such as marketing and payroll. In some cases, it can even be easier to get equipment financing for bad credit than conventional financing.
Crowdfunding
The first step to crowdfunding to get a loan for a new business is to develop a business idea. You’ll need a product and a marketing plan to attract backers. Many sites will match you with people who share your excitement for the concept. For example, people might back your sandwich shop if they think you’ll create delicious sandwiches. Then they’ll open their wallets to fund your idea.
Using crowdfunding to obtain a loan for a new business is a viable option for some small businesses. It allows you to spread the risk and reward of ownership by providing a pool of eager customers and a higher credibility. However, it is important to read the fine print and fully understand your financial obligations before you decide to use crowdfunding to fund your project. If you don’t feel comfortable using this method to raise funds, consider a small business loan instead.
