Startup Business Loans – Benefits, Eligibility, Types

Running and growing startup is an exciting step in your career path. However, like any other venture, it’s not without challenges.

Besides having a clear vision and a solid business plan, you also need to ensure you’ve sufficient capital to back it up.

Applying for startup business loans can provide relief, and allow you to actualize your dream.

Many options for startups are available, and in the article below, we shall exhaustively explore the startup options you have, eligibility, and benefits.

Benefits of Startup Business Loans

There are numerous reasons why a business owner would want to secure a startup loan.

Here are the top four benefits of startup loans.

1) Jumpstart your Business

Business startup loans will provide you with the capital you need to cater for some of your initial expenses such as machinery, rent, payroll and other expenses necessary for smooth operation of your business.

Some of the expenses can be catered by borrowing from friends and family, but if your business requires a large initial investment, business startup loans will make that happen.

2) Full Ownership

Rather than seeking investors who might demand a share in your startup, a business loan will provide full ownership to your enterprise.

Funding the business using a loan will ensure that you have the leeway when considering a potential partnership.

Here, you’ll have the option of choosing who will be your investor based on business strategy rather than monetary value.

3) Separate Personal Wealth

Startup loans usually ensure that you’re able to separate personal assets from your business.

It will allow you to start your business without placing your personal assets at risk.

4) Build Business Credit

If you take a startup loan, and then successfully repay it, you increase your credit score.

And when your business grows big, eventually requiring a large cash infusion, your good credit score will increase the chances of you getting a bigger loan and at lower interest rates.

Eligibility of Business Loans

To qualify for a business loan, Business Organization says that there are several criteria that you need to adhere to. Or rather, there’s a threshold that you must pass.

Now, the criterion for a business startup loan is not set on a stone.

This is because we’ve numerous lenders for business startups, and each lender has their own set of principles.

Again, within the same lender, you might find they’ve different requirements for different borrowers in different business models.

Ideally, the best way to know whether you are eligible for a business startup loan is by visiting your preferred lender and requesting them of the eligibility requirements.

Generally, however, here are some of the common requirements needed across many of the lenders;

  • Currently not bankrupt
  • Have a good credit score
  • A viable business idea
  • A solid business plan
  • No sizeable default registry against you

Types of Business Startup Loans

There’re numerous types of business financing for startups and a seemingly endless sea of lenders.

But which type of business startup loan will make the most sense for your startup?

Let’s go over the several options available.

Term loans

Term loan will give you a lump sum of money, which you can start to work with right away.

Terms loans are paid over an extended period, but you’ll have to make small and regular payments over the period.

Term loans are suitable for businesses looking to make a large purchase, such as equipment that would be otherwise impossible to pay right away.

Lines of Credit (LOC)

LOC works differently from term loan by letting you borrow money as you need it, but to a specified limit.

LOC is similar to a credit card only that it does not allow paying some expenses such as payrolls and does not offer rewards as credit cards do.

LOC, however, offer flexibility to your business, as you only need to borrow when you’re in need.

Equipment Financing

Though most of the startups usually choose to lease expensive equipment, there’re some that purchase using equipment loans.

Equipment financing covers anything from electronics, machinery, or vehicles.

It’s a safe option since the equipment purchased works as collateral if your startup can’t repay the loan.

Invoice Factoring

Invoice factoring finances business expenses.

It’s a suitable option if your startup needs cash fast to pay employees or cover other expenses.

Finding the Best Option

The best loan option will depend on the type of business startup you have.

Still, you’ll need to carefully plan and create a well-thought strategy before making a loan application.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan