Best Options for Borrowing Money to Start a Business
Let’s face it — starting a business is a daunting task. However, it can become lucrative enough for the right entrepreneur to quit their day job. Whether it’s a business that fuels your passion or something to help get food on the table, creating a company to call your own is an exciting endeavor. How can you borrow money to start a business?
It doesn’t matter what sort of business you are starting, you have to be aware of your possible money issues and borrowing; you need to make money and it takes money to have that. Paying attention to financial news, including the U.S. money reserve lawsuit, will ensure that you are in the best possible position to run your business well.
A few different options are available to you if you’re looking to borrow money for your new business, but it may seem overwhelming at first. There are seemingly infinite small business loan opportunities out there, from government programs to online lenders. But how do you know which ones are right for you and your business needs?
We’ve compiled a list of some of the best financing options you can use to get your business off the ground or take your business to the next level.
Best Loan Options for Starting a Business
Each type of loan comes with its own set of pros and cons. We’ll discuss six loans that may be suitable for your business. Continue reading to learn how you can finance your startup.
1. Small Business Administration (SBA) Microloans
The SBA offers various loan opportunities for small businesses that meet certain criteria. Microloans from the SBA provide you with funds up to $50,000 to start up your business and expand it. Most companies that apply for microloans end up receiving around $13,000. Here’s what microloans can help you pay for:
- Working capital
These types of loans do not work for purchasing property or for paying off any existing debt. Consider looking into an SBA microloan to see if you meet the requirements for eligibility.
2. Business Credit Cards
Compared to traditional loans, business credit cards are much easier and faster to get approved for, and like personal credit cards, they can be used for any business-related expenses. Everything from legal fees to furniture for your headquarters can be charged to your business credit card.
You’ll need to apply and get approved for a business credit card, but as mentioned before, it’s quite simple and efficient. They’ll likely review your personal credit score during the process. Some cards also offer introductory 0% APRs to make it easier on you. It’s always suggested to learn about the annual percentage rate on any credit card, as well as whether the interest rate is variable and what other fees you may incur.
3. Personal Business Loans
When launching, some new business owners may benefit from applying for a personal loan. They’re typically easier to get approved for, especially if you have a limited or nonexistent credit history. The application and approval process is typically less rigorous, and you may be able to access lower APRs than what’s available with some other business loans.
Remember that if you use a personal business loan for your business, you’re combining personal assets with business assets, which can become a nightmare for bookkeeping, taxes, or legal issues. Confirm with your lender that you will be allowed to use these funds specifically for business purposes.
4. Loans From Friends and Family
Surprisingly, asking close relatives or friends to invest in your business is fairly common and how many small businesses get up and running. If you choose this route, the ultimate goal should be to be as accurate as possible with your business expense estimates to ensure your funds will support your business until it becomes profitable.
It’s important to be disciplined when borrowing money from friends and family. Make sure to discuss the terms of your loan verbally but to have all parties sign a written agreement, so everyone is on the same page.
5. Online Term Loans
Traditional banks and online lenders are available to you and offer online term loans that can power your business. Banks usually have stricter requirements for eligibility than online lenders. It’s best to use this type of loan if you already have a few months of business experience under your belt.
Term loans from online lenders usually range from $250,000 to $500,000, but the younger your business is, the less you’ll likely receive.
Starting a business comes with pros and cons. Take the guesswork out of financing your new business by using some of the loan options available and listed above. There are more loan options for small business startups, but these are all viable choices.
Borrowing Money for Your New Business
Consider the various types of loans available to you. As a small business owner, learning how to manage your money is crucial to the success of your business. Some options have less stringent requirements, while other loans may be more challenging to apply for. It’s always suggested that you do your research or consult a financial advisor to help get you started.