Any new business needs funds to get it off the ground. For most startups, that means using a business loan provider. As with any financial service, there are many things to consider when deciding which loan provider is best for funding your new business.
How Much Money Do You Need to Start?
Just as there’s no set size for a small business, there’s no standard amount of funding a startup needs to get the company going. Business loans are available in sizes to fit almost any need, from small sums to maybe fund a truck, to more substantial amounts to cover the cost of premises and equipment.
The average business loan is about $140,000, and it’s rare for a startup business loan to go any higher than $250,000. If you need more than this, you’ll probably be best looking for third-party investment instead.
At the other end of the scale, there are micro-loans available that are offered for as little as $5,000. If you have a solid idea of how much you need, it will help you to find the right type of loan and lender by narrowing the market down to mainstream banks, specialist lenders, or alternative financing companies who offer the amount you’re seeking.
What is Your Reason for Borrowing?
Traditional lenders often require that businesses give them a detailed outline of how they are going to use the money. The lender may base your loan approval on how valuable they think their investment will turn out to be.
Mainstream banks will usually want to see a conservative business plan with minimal risk. However, if you go to an alternative lender, you may find that they allow more freedom over how you spend the loan and often accept a higher level of risk (although usually at the expense of a higher interest rate).
How Long Has Your Company Been Running?
Most banks, credit unions, and specialist business lenders require that your company will have been trading long enough to supply some basic financial credentials. At a minimum, you’ll likely be asked to provide details of a positive personal and business credit history, projected financial statements, and at least one year’s worth of cash flow projections.
If you are starting out, it may be difficult to supply any of this documentation. If this is the case, an alternative lender may be the better option as they don’t necessarily make their decisions based on the history of your credit or your years in business.
However, when approaching an alternative lender under these circumstances, you’ll need to prepare a detailed and plausible business plan to support your borrowing proposal.
Making sure your startup is adequately financed is essential if you want to make your new company a success. With proper funding in place, your energies can go toward driving your business forward, rather than worrying about paying the next round of invoices.