Getting approved for a start-up business loan or acquiring additional capital for a venture that’s under 12 months old is a pain in the you know what… Most would-be entrepreneurs often set out with little more than a dream, a plan scribbled in a notebook and the desire to want more for themselves than working a 9 to 5 for the “Man”. Everyone has a dream, but few have excellent credit or the capital reserves necessary to launch and sustain a venture which is what contributes to the high failure rate of startup ventures. In this post, we’re going to discuss the ways you can fund your start-up or acquire additional working capital for your new business.
Funding Options As a Startup or New Business
Banks, in theory, exist to hold member deposits and grow those funds by lending them out to the community in return for interest – and while great in theory – if you’ve ever tried to get a loan from a bank, you know qualifying for a loan is next to impossible in today’s lending climate. It’s almost as if banks get paid to turn down applications as opposed to actually approving loans.
However, if you have exemplary credit and more than 2-years in business, banks are your best bet for getting capital at low-interest rates. Be forewarned, however, that even a perfectly packaged bank loan can take 45 – 60 days to underwrite.
2. Friends & Family
Do you have a good reputation and social capital among your peers?
If so, approaching your immediate circle may be the route to go when seeking funding for your business… For some reason, however, many entrepreneurs are hesitant to approach people they know for an infusion of capital – be it embarrassment or not knowing how to go about it. By ignoring your immediate personal network, you may be leaving money on the table.
Ultimately, some people don’t possess the entrepreneur gene but will gladly put up some of the money they have sitting in the bank to invest with you provided they’ll receive a return on said investment. When approaching people you know, it’s important to approach them as you would a bank – have a plan, have a budget, and a repayment schedule with ROI calculations already worked out.
What’s the worst a friend can say, no? …and if they do turn you down, at least you gave them the opportunity to invest on the ground floor.
Need a sample loan agreement? Here’s a great resource for you… Sample Loan Agreement from Rocket Lawyer
3. Angel Investors
Angel Investors are firms that seek out start-ups to invest in. These are highly liquid and capitalized funds that actively seek out “the next big thing” to back financially with the promise of seeing a large return on investment at a future date.
However, like banks, acquiring angel funds is next to impossible for the average startup and I wouldn’t spend too much time focusing on this avenue. These investors tend to favor tech companies, not the traditional small business companies that 99.99% of you reading this are trying to get off the ground.
4. Unsecured Lines of Credit
Unsecured lines of credit have been marketed and advertised to death – chances are you’re familiar with the term but have no idea what they are or how to gain access. Essentially they are revolving lines of credit that you can tap into and use for any need that may arise for your business.
Credit lines can range from $5,000 to over $500,000 for the most qualified of borrowers. Capital Funding Partners can provide you with unsecured lines of credit and we will approve them down to a 620 FICO score. Banks also offer ULOCs but their guidelines are much more restrictive and harder to qualify for.
The good thing about unsecured lines of credit is that you only pay interest on the amount of credit you use, not what you have access to. So if you have access to $50K but only use $10K, you are only paying interest on the $10K you’ve tapped into.
5. Micro Loans
A new entry into the business loan space are micro loans – these are geared towards newer businesses that gross less than $10,000 per month and have been in business for at least 3 months. Fortunately, they aren’t based on credit, but simply the amount of verifiable revenue your business is generating. These are a great way to receive small amounts of working capital during the critical startup phase of your business where you’re trying to grow while keeping the lights on at the same time.
– Micro Loans can range from $3,000 to $15,000
– Require Only 3 Months of Banking History
– Can Fund in Under 48 hours
If you have an established business but haven’t been in business that long, contact us to see if you qualify for a micro loan today.
6. Merchant Cash Advances
Merchant Cash Advances (MCAs) are the forefathers of micro loans. They aren’t credit driven but are approved based on your business having verifiable income and having been in business for a minimum of 6 months. Loan amounts typically range from $10,000 to $150,000 and funds can be dispersed in 24-48 hours in most cases.
To be completely transparent, this money isn’t cheap but can be a lifesaver for a business that needs capital fast. The application process is fast and payback is straightforward. If you’ve been in business for a few months, and are grossing more than $10,000 per month, MCAs may be a great way to go. CFP Direct offers MCAs with reasonable terms and relaxed qualification requirements.
7. Accounts Receivable Financing
Is your business one that invoices vendors or clients? Do you often have to wait 30 to 90 days to receive funds from your clients? If so, A/R funding is a great way to get capital quickly. Essentially, you’re getting advanced payment on outstanding invoices and the funding source is paid when the invoice is paid at future date. Typically, you are advanced a percentage of the outstanding balance owed to you.
Client “A” owes you $20,000 to be paid in 60 days. We will front you 85% of that invoice and handle the collection of funds in exchange for ownership of the invoice. You get $17,000 today and are able to use those funds to sustain your business – be it making payroll, purchasing additional product, marketing or whatever other business related need you have. Credit isn’t an issue for A/R financing products – you simply have to have collectible invoices.
Putting It All Together: Securing Funding for Your Startup or New Business
Let’s face it – businesses with access to capital are much less likely to fail than those without it. There IS money out there for startup and newer businesses if you know where to look. Capital Funding Partners has extensive experience in providing cash to business owners just like yourself and unlike banks, we want to say YES to your loan request.
If you’re ready to see how much we can lend to you today, fill out the web form to the right or give us a call at 713-364-5860 to get the ball rolling today!