by Edwin Taivonen
Getting a business loan for a startup can seem like an impossible task, especially since banks have recently tightened their lending requirements. While it is more difficult to get a loan for a new business, it is far from impossible. You just have to go about the application in the right way. Here is a guide explaining how to secure a business loan as a startup so you can get the money you need.
Build Your Credit
In an ideal world, you will get a business loan with your business credit. This is just like your personal credit, but it reflects the financial stability of your business instead. This is difficult to do as a startup because chances are you haven’t had a lot of time to build your business credit yet. In that case, you need to make sure your personal credit is strong because lenders will base your approval on that. If you have a low credit score, you may need to look into some of the alternatives at the bottom of this article.
Create a Strong Business Plan
As a startup, you are not going to have a longstanding sales history that you can show a lender. Thus you are going to need some way to show them you are going to make money with your business. The only way to do this is to have a fully established business plan, complete with expense expectations, profit targets, and more. You can’t expect the bank to “hope” your business will do well. You need to show them that it will.
If you do not have a business plan at the moment, you need to get familiar with the components of one. The Small Business Administration provides a great guide here for writing a business plan.
Maintain a Steady Job
You are going to have to guarantee your business loan since your business does not make enough to do so on its own. That means that you personally have to qualify for the loan just as much as your startup has to. If you have a steady job that provides sufficient income for your loan, you should be in good shape. If not, you will be limited in what you can get through a bank or credit union.
Alternatives to Business Loans
If you do not qualify for a business loan, check out some of these options instead:
- Business credit cards: I was able to get a $2,000 Chase Ink business card about a year ago, even though my personal credit wasn’t great. This wasn’t enough to cover all my startup expenses, but it was certainly a start.
- Venture capitals: If you have a business someone else would want to invest in, you could consider a venture capital fund. You can set this up online and pitch your idea to people willing to support you financially.
- Government grants: Some government grants are available for startup businesses, though they may not be specifically designed for starting a business. For instance, you might get a grant to cover your building costs if you are planning to use energy efficient materials for the construction.
- Fundraisers: Fundraisers may seem childish, but they are highly effective methods of raising money. Come up with something more creative than a car wash or catalog sale, and you may get all the money you need for your startup.
Edwin Taivonen is a staff writer for LocalCashGuide, a personal finance blog aimed at helping people learn more about payday lending legislation and how to make the most of various cash advances. Follow him on Google+ and Twitter.