How Startups Can Use Small Business Loans

By Fernando Berrocal

For startups, there are numerous types of small business loans. Profitability is the standard by which success is measured, and money is required to create money, especially when you're getting started. Many new entrepreneurs are eager to put their great ideas into action; however, keeping daily operations afloat may be difficult if you don't have enough working capital. Depending on your industry, you'll likely face a variety of startup costs. Most businesses will require a combination of equipment, supplies, communication and collaboration technologies, licenses, professional consultants, marketers, and a website to reach customers.

How Startups Can use Small Business Loans

Much of what determines an organization's future viability is determined by its planning process, but if you lack capital, your startup may never progress beyond the ideation stage. Obtaining the appropriate amount of finance, whether on your own or through bootstrapped investment, can be difficult. The good news is that there are a variety of startup financing options available to help you get started.

Small Business Loans for Startups:

Starting your own business is a rewarding experience. While having a solid business strategy is essential, financing is one of the most critical components for an organization's success. Small business loans can be used for equipment, real estate, and other startup costs. When looking for starting financing, keep in mind that there isn't just one type of loan that qualifies as a "starter business loan." This means that whether you have a limited, or no, business or credit history, you can get a choice of financing options.

How small business investment may help local startups:

  • Determine how much money your startup requires:  Before you apply, think about how much money you will require. Not only should you factor in one-time costs, but you should also factor in recurring or ongoing costs like inventory, leasing, taxes, etc. New business owners sometimes rely on opening sales to keep their businesses afloat, but relying significantly on revenue straight away is a dangerous strategy. To obtain an idea of how much money you'll need to borrow upfront, calculate at least six months' worth of costs.

  • Check your Credit Report: Before applying, you should also verify your credit report. Since your credit score indicates your financial health, knowing it and what you're doing to improve it can help you predict your chances of getting a loan. Because it takes at least three years for a business to create credit, your lender will almost certainly look at your personal credit history. Take some time to enhance it before applying for a loan, as it will have a major impact on your approval. A major national credit bureau, such as Equifax or TransUnion, can provide you with a duplicate of your credit report. Look for credit score detractors such as late or missed payments, large credit card balances, and collections while reading your report.

  • Review your Business Plan: A business plan will almost certainly be required by your lender as part of your loan application package. Banks and other lenders want to know that you have a strategy in place to build a viable and sustainable business that will be profitable enough to repay the loan. Although business plans are important in assisting financiers in determining the feasibility of a startup, a well-executed business plan may also act as a road map for you to guarantee your business is successful. Cover page, executive summary, business description, market strategy and analysis, organization and management, service or product description, market and sales, forecast of financial forecasts such as sales and profits, financing request, and appendices should all be included in a full business plan. It's critical to explicitly articulate why you need business financing, the quantities you're requesting, and the purposes for which the funds will be utilized when writing your funding request.

Startup Capital for Small Businesses:

  • SBA Microloan: The Small Business Administration's (SBA) microloan program provides up to $50,000 in loans to small enterprises that are just getting started or expanding. SBA microloans are often easier to qualify for than some other loan choices since they are handled by nonprofit community lenders. Microlenders and charity lenders, in general, target traditionally underrepresented small company owners and communities, as well as struggling small business communities. You may build your business and create better credit by applying for an SBA microloan, which will allow you to qualify for other types of loans when you're ready to scale up.

  • Asset-Based Financing: Asset-based financing is a specialized form of providing working capital to businesses by securing the loan with assets such as accounts receivable, inventories, equipment, or real estate. Liquid collateral, which can be converted into cash if you miss on a loan payment, is preferred by asset-based financing lenders. This type of loan will necessitate a comprehensive business plan presentation to prove that you can make payments.

  • Line of Credit: A line of credit is a flexible funding tool that small business owners may use to obtain revolving money in the same way that a credit card does. Your business will be approved for a specific amount of credit, allowing you to draw on it as needed while just paying interest on the sum owed.

  • Business Credit Card: As the owner of a small business, it may make sense to use a business credit card for business spending. It can be useful for covering upfront expenditures while developing corporate credit, as well as keeping personal and business resources distinct.

Apply for a business startup loan:

It's time to apply once you've decided on the best startup funding option. Depending on the loan choice you select, the application process will normally differ. If you want to apply for a more typical loan (a microloan or a line of credit) you'll probably have to fill out an application with basic personal and business information, as well as provide documents such as:

  • Personal credit score and credit report.
  • Plan for your financial future.
  • A copy of your commercial lease.
  • Financial statements or bank account statements for businesses (if applicable).

Local Startups Small Business Loan

If you want to apply for asset-based debt financing, you'll need to produce paperwork for the equipment you want to buy and be willing to put up collateral, sign a personal guarantee, or even put money down.

The application procedure for business credit cards is relatively straightforward, requiring simply your federal tax ID or your Social Security number. Preparation is essential for a loan application. Before you fill out the application, make sure your finances are in order and that you have all of the necessary paperwork.

Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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