7 ways for entrepreneurs to get loans for their new Startup in USA
Even though some lenders offer loans for new businesses, you may need to find other ways to pay for a new business.
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Many small-business lenders want you to have been in business for at least a year before they will give you money. But if you need a loan to start a business, there may be other ways to get the money you need, as well as a few different types of small-business loans.
Here are seven ways for small businesses to get money to start up.
1. SBA loans
Small businesses that want to startup or grow can get loans of up to $50,000 from the U.S. Small Business Administration's microloan programme. About $13,000 is the average amount of an SBA microloan.
SBA microloans are usually easier to get than loans for bigger amounts of money because they are handled by non-profit community lenders. The downside is that not all borrowers may get enough money.
The SBA's most popular loan programme, 7(a), also gives money to people who want to start their own businesses. But it's harder to get SBA 7(a) loans. Most of the time, the loans go to well-established businesses that can put up collateral, like real estate or equipment, that the lender can sell if you don't pay back the loan. There are a lot of rules about who can get an SBA loan, and even if you meet them, it can take a few months to get one.
2. Microloans
Outside of the SBA programme, you can also get microloans, and microlenders and nonprofit lenders can make it easier to get loans for a new business, especially if your finances aren't great. Many of these lenders focus on helping small business owners who are minorities or who have been underserved in the past. They also help small businesses in areas where the economy is struggling.
Since these loans are often given by organisations with a mission, the terms are likely to be better than what you would get from a private lender. This will help you grow your business and build better credit. This could help you get other kinds of loans in the future.
3. Personal business loans
Personal business loans, like those offered by online lenders, are another way for new small business owners to get the money they need. Personal loans are based on your personal credit history, which makes them a good choice if your startup is too new to qualify for other business loans.
APRs on personal loans can be high (up to 36%), especially for people with bad credit. This means that this type of loan for starting a business is best for people with good credit and a good income.
4. Grants
Another way to get money for your small business is to apply for grants from private foundations and government agencies. Since these aren't loans, it can be hard to get them. But for some new businesses, the hard work might be worth it to get free money.
For example, if you served in the U.S. military, you can get small-business grants for veterans. There are also grants for women who own small businesses.
5. Family and friends
Borrowing money from friends or family may be the most common way for a new small business to get started. Obviously, if you have bad credit and your family and friends know it, you'll have to show them that you can pay them back.
In these kinds of situations, the cost of failing isn't just money; it's also personal.
Cut down your list of friends and family to those who understand your plans, and do your best to make sure they are okay with the risks.
6. Credit cards
Many people who want to start their own business use credit cards to get the money they need. You can use this option to get short-term financing for business purchases that you can pay back quickly.
If you don't pay off the balance, interest charges will keep adding up, and your credit card will quickly become an expensive small-business loan.
Your personal credit scores have a big impact on the annual percentage rates on your business credit card. If you don't have good credit, you'll pay more in interest.
7. Crowdfunding
Crowdfunding has become a popular way for small businesses to get money. Sites like Kickstarter and Indiegogo, which let you run online campaigns to raise money, have made this possible. Instead of paying back your donors, you give them gifts. This method is also called "rewards-based crowdfunding" because you give them gifts instead of money.
There are also ways to do equity crowdfunding, where you tap into a public pool of investors who are willing to fund your small business in exchange for a piece of it. With this type of crowdfunding, you can reach out to more than just accredited investors. You can also reach out to "mom and pop" investors.
Crowdfunding is a great way to get money for a business that wants to try out a product or service with a group of customers and see how they react without going into debt.
What to look out for when shopping for business loans for Startup.
Check your credit report for mistakes that could be dragging down your score and dispute them with the credit bureaus. Also, keep your credit card balances low and pay all of your bills on time.
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