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How to arrange startup funding for small businesses in three easy steps!

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Funding your startup business is one of the first and most important financial choices most business owners make. How you choose to fund your business could affect how you structure and run your business.

List of top startup business funding sources

Once you know how much startup funding you’ll need, it’s time to figure out how you’ll get it.

    • Friends and Family

    • Friends and family are the number one source of startup funding for most small business owners. In a Small Business Trends survey in 2017, 26% of respondents said they considered friends and family as their most reliable source of capital. After all, if your friends and family don’t believe in your business, who will?
    • Personal loan

    • Various new small business owners obtain startup funding through personal loans or personal bank loans, usually from online lenders or banks respectively. But like credit cards, personal loans can have high rates, especially for bad credit borrowers. Personal loans can be a good option for borrowers with excellent personal credit and strong income.
    • Personal credit card

    • As a startup business owner, your business does not have any credit history of its own, so if you plan to use credit cards as a financing method, you’ll have to use your personal credit cards at first. Using credit cards for business financing can be risky if you don’t manage your debt carefully. The best way to use credit cards is to pay for things you know you’ll be able to sell for a profit.
    • Find an investor for your business

    • Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and an active role in the business. The idea is to invest in a company’s balance sheet and infrastructure until it reaches a sufficient size and credibility so that it can be sold to its real owner.
    • Microloans

    • Microloans are small loans, sometimes as little as a few hundred dollars, often designated to assist business owners who have limited work experience, live in underserved communities, or are starting businesses that will help give back to the community. If you need a small amount of money, such as $5,000 to $10,000, a microloan could be the perfect solution.
    • Loan on unpaid invoices

    • Invoice loans turn business owners’ unpaid invoices into immediate cash. You sell the invoices to a merchant cash advance 360, which is paid when it collects from your customers. If you prefer to maintain control over your invoices, invoice financing is an alternative to startup business funding.
    • Equipment Financing

    • Specifically designed to pay for the purchase of equipment and machinery. Equipment loans are related in structure to conventional loans, with monthly repayment terms over a long period. However, money must only be used to purchase equipment or machinery. The lending criteria for equipment financing can be less strict because your equipment will be used as collateral for the loan. If you default, the bank has the right to seize your equipment to cover the cost of their lost money.
    • Startup funding from Merchant Cash Advance 360

    • Merchant Cash Advance 360 interactive online tool allows business owners to find financing that meets individual goals with just a few clicks.

    • You can complete an online small business loan application in 15 minutes. Sometimes we ask you to submit an additional document or two, but we make it easy for you to upload your stuff online – all it takes is a click. Plus, there’s no fee or obligation.

How do you start with a startup business loan?

A good place to start is with your business credit score, which is a measure of the creditworthiness of your business. You can check your business and personal credit scores with Nav.

A good credit score can put you in a much better spot than a bad credit score, so be prepared to put in the work if you want to improve your business credit score.

Prepare documents for your first startup loan application

It’s also important to have answers to the following questions before you submit your first startup loan application.

  • How is your cash flow?
  • How long have you been in business?
  • Is your business plan up-to-date?
  • How much can you budget for monthly payments if you’re approved for a loan?
  • Are you prepared to put up collateral or to backup a personal guarantee?

All of these are important to know and have on hand when approaching a lender with an application.

You’ll then need to identify which type of startup financing you’d like. Before gathering documentation for your business, you need to know what the lender will be looking for the application for microloan will likely be very different than that for a business credit card.

Having a budget in mind for monthly payments can help you best narrow down what financing products you’re interested in applying for.

Be aware that the world of small business funding stretches well beyond your local bank or even the financial institution where you do your business banking. This isn’t to say that those banks or credit unions can’t be the best option for you, but be sure to do your due diligence. Be sure to check if the lender has an online application process, which can save you an errand and precious time that can be put back into your business.

Documents required for preparation of startup business loan

  • Business plan with details on your growth and marketing strategies.
  • Business and personal credit report.
  • Business forecast with details on future cash flow.
  • Tax returns and supporting IRS documents for both your business and personal tax accounts.
  • Applicable licenses and registrations for doing business in your state
  • Financial documents (bank statements, credit card sales, unpaid invoices, and accounts receivable).
  • Documentation of underserved representation.

Who is eligible to get startup business funding

Those who have more time in business will certainly have a better chance than a business with mere months or weeks under their belt, and business with positive business credit history can stand out as well.

The king, however, is cash flow. Depending on the lender and loan type, a financial institution may be more willing to overlook a short time in business if your cash flow is strong.

Your industry type is important as well as certain industries, such as real estate, are known to be higher-risk, and may get ignored from lenders. Be sure that your NAICS code is correct if the lender asks for it.

If your business isn’t in shape to qualify to borrow money, consider business grants. Grants are free money granted by certain organizations or individuals to promote a certain cause, much like a college scholarship. If you’re based in an underserved area or work in a niche industry, you might qualify for a grant.

As you review the state of your business and look over what type of financing you may need, it will become clear which financing options are more realistic for your business. Continue to keep an eye on your business credit score, keep your business plan up-to-date, and adjust your budget and marketing strategies as necessary to keep your application looking tip-top.

What is the cost for startup business funding

If you’ve already started your search for startup funding for your business, you’re well aware that there are infinite options available. Each one will come with its own set of pros and cons.

Startup business loan payments are determined by three main factors.

  1. Loan amount
  2. Interest rate
  3. Loan term

Startup loan decisions are made differently from other forms of business financing. Instead of basing funding on revenue, time in business, and your business’s credit history, lenders will look at factors like the type of business you’re starting, the related experience you have, and your personal credit score, among other factors.

Interest rates for startup business loans typically range from 9% to 28%. For Merchant Cash Advance 360 startup funding programs, that rate can drop to 7%.

These rates may be slightly higher than other forms of business financing, but startup loans make financing more accessible to companies that may not yet qualify for a regular startup business loan or a bank startup business loan.

How to reduce startup business loan cost for small business

Take steps to avoid risk factors from your business loan program.

  • Make your minimum payment each month. That’s the easiest way to keep your costs under control. This practice helps you avoid late fees and boost your credit score, which is especially important if you’re working toward qualifying for a different form of business financing in the future.
  • Calendar your due dates. Set up automatic payments. Do whatever you need to do to “set it and forget it” so those startup loan payments are always on time.
  • Find out where your lender stands on early payment. Some lenders will offer you a modest discount for paying off your loan early, while others may implement prepayment penalties. Before you rush to make advance payments, ask your lender about any potential penalties and discounts that apply to your startup loan.

Top 5 Startup Funding options for small business

No solution is perfect, and different products are designed for different needs. It's up to you to decide what route is best for your business, so to help make your life easier and save you some time, we've compiled a list of the best five start-up business loans in the market.

    • SBA Microloans

    • In addition to the SBA 7(a) and 504 loan programs, the SBA also offers microloans which are typically made through community development financial institutions (CDFIs) and non-profit organizations. Available up to $50,000, a microloan through the SBA can be used for working capital or the purchase of inventory or supplies, machinery or equipment, or fixtures and furniture.
    • Lean More
    • Crowdfunding

    • Popular crowdfunding platforms like KickStarter allow anyone with a vision,including entrepreneurs, to raise money for their project or venture.A business startup loan through crowdfunding will require the business owner to share their business plan and objectives as a campaigner with a large group of people in hopes that multiple lending companies and channels will eventually lead to the desired funds. These campaigns take lots of marketing effort but the end reward should a startup loan and validation of your business idea by many potential lenders.
    • Lean More
    • Currency Loan

    • It’s an online lender that specifically specializes in equipment financing, offers a variety of products for different needs, and has extremely lenient requirements. Additionally, Currency partners with eBay, so users of eBay's Express platform have the option to finance equipment bought on eBay with Currency.
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    • Ink business cash credit card

    • Ink Business Cash Credit Card because is one of the few small-business credit cards to give users 0% financing. Cardholders get an APR of 0% for 12 months on purchases. Moreover, the Ink Business Cash Credit Card comes with a rewards program, which means you'll get extra cashback in your pocket for everyday expenses. While 1%-5% might not sound like much, over time that capital will add up, providing you with a little bit of extra liquidity.
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    • Merchant Cash Advance 360

    • Merchant Cash Advance 360 is the largest small business loan marketplace, which means we connect you to more loan options than anyone else. All you have to do to gain access to our nationwide network of 750+ lenders is to fill out the online application. Once you’re approved, you’ll be able to access your capital in as little as 24 hours.
    • When you apply through Merchant Cash Advance 360, your dedicated funding manager will ask about your needs, walk you through different loan options, and help you choose the perfect small business loan. You won’t have to deal with brokers, banks, or convoluted financial jargon. Merchant Cash Advance 360 will keep it simple so you can make informed decisions and find financing fast. And it doesn’t stop with financing, merchant cash advance 360 can even connect you to small business credit repair, bookkeeping services, and legal assistance.
    • Lean More

How to get free business grants for a small business startup loan

Business grants are essentially thought to be free funding where you typically don't have to pay interest rates or fees. However, keep in mind that nothing is free, and we believe that grants are some of the most costly financing forms out there. To be a competitive applicant, you'd likely have to network with the organization or group offering the grant, go through lengthy applications, and may have to present or pitch your ideas to different audiences.

In other words, business grants take a lot of time, and they're notoriously difficult to win. The larger the grant, the more difficult it is to win. Also, given how long the application process is, business grants aren't right for start-ups in need of quick funding.

Final words

Above all, keep your motivation for starting the business in mind. It can be a rough process finding and being approved for a startup business loan, but the right motivation can push through it and get the job done.

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