Banks are not lending to start up businesses. Start ups just have too much risk and as such banks now require that your business be in operations for at least 2 years before they even look at your loan application and they also require that your business be profitable over those two years before they even think about approving that application.
Not the best resource of capital for a new business.
On the other hand, new, small business lenders have been entering the market to take up the slack that these banks are leaving behind. Good news right?
Good news for businesses that have solid operating histories as most of these new players still require that the borrower be in business for at least one year and have annual revenues of at least $100,000 (most but not all - but still most). Again, not the best capital resource for start up companies.
Lastly, even the majority of the alternative loan products out there, those loans that are there for businesses who can't get financing anywhere else, still require some level of revenue (which backs the loan) as well as some time-in-business requirement - both things that start ups just do not have.
But, none of this has to hold you and your business down. In fact, we outline three of the most common ways that start ups have found to finance their companies outside those traditional and alternative business loan resources.
3 Ways To Finance Your Start Up Business
Remember that others have gone before you down this same path and they have not only survived but they have prospered as well. And, if they can do it - so can you!
1) Personal Loans: Now, I know you don't want to hear this, but the best way to finance your new, start up business is through personal loans - this could be your standard personal loans, personal lines of credit, credit cards and even home equity loans.
Most business owners - especially new entrepreneurs - don't want to use personal resources to finance their business. And, that is clearly understandable. However, very few banks or similar lenders will fund a start up business. And, if they did, they would still require that you sign a personal guarantee for that business loan - essentially making that loan a personal loan anyways (a personal loan that still has to go through the harder, more stringent business loan underwriting process).
Therefore, if your loan is going to be a personal loan anyways, then you might as well just start there. These loans are easier to qualify for, require less in terms of hassle and fees than business loans and can be approved and funded before you even get your business loan application fill out.
2) Micro Loans: Back in 2007, there was a study done that suggested that new, start up businesses were spending on average some $70,000 to start their companies. But, this is not the case today. Research today suggests that average start up costs are half that amount depending on the type of business being started.
So, if your business only needs a small amount of start up capital, then it is a perfect fit for a micro loan. Micro loans can provide up to $35,000 for start up businesses and up to $50,000 or more for existing businesses. And, most of these lenders require that you have already been turned down elsewhere - making them perfect for start up businesses struggling to get the capital they need to get their doors open.
And, let's say that you need more capital then that to get your business to the point that it can begin to sustain itself, a micro loan still can work for your company. These loans can be used either in conjunction with other financing options or used as a stepping stone to get your business that much closer to the starting line by either reducing your remaining capital needs or by moving your company up the ladder to that next rung and better positioning it for more traditional loan options.
The SBA has a list of micro lenders that they support and back or, if you can't find one of those in your area, know that many state, county and city governments also offer their own versions of micro loan programs.
3) Customers and Suppliers: Lastly, there are times when nothing seems to work in regards to getting outside money into your start up. However, in most cases, money (especially loan money) is only a middle man. You use this money to buy things - other products and services - that you can then use to move your business forward.
But, if you can't get that needed money, then you just have to find other ways to get those products and services that you would have bought had your business received that needed loan.
Many times, start up businesses use loan funds to purchase inventory, raw materials for manufacturing or even supplies for service companies. Well, there are ways - by working directly with those suppliers or vendors - to get all that your business needs.
There is nothing stopping your from working a trade credit deal with your suppliers. In these types of deals, you ask your suppliers to delay the payment you owe them until after your business has had time to get those products or services, add value to them and sell then off to your customers. Let's say that your retail business is expected to turn over its inventory every 30 days. Thus, 30 days after receiving that inventory, your business can convert it into cash - cash from its customers. It can then use that cash to pay off those suppliers or vendors or whatever. So, in this case, ask your suppliers for 30 days or more to pay for the products or goods you take today.
Know that these businesses - these suppliers and vendors - are also struggling in this economy and the potential of having another good customer on their books can get them to agree to almost all legitimate suggestions in this arena.
Or, you could even hit up your potential customers to cover some of your initial working capital needs.
Here, you could potentially ask your customers to pay something up front in order for your business to complete their job or order. Let's say that it costs your business $1,000 in expenses to complete a job. Then, your business collects, say, twice that amount ($2,000) from its customers when the job is done. But, to get the job started and completed, you could just ask your customers to pay 50% up front - enough for you to get that job done. This is essentially having your customers provide your business the working capital it needs to move forward (and do it without the interest and fees that banks and other lenders will charge).
While we outline and discuss these three very common ways that other start up businesses have financed their companies, these are by no means a complete list. The mantra to keep in mind is this; "Where there is a will, there is a way!" So, you just have to find YOUR way - by either using these examples or by simply using them to inspire your own.
Banks - usually the go to source for start up capital - are pulling back from the small business lending market - they are making fewer and fewer small business loans each and ever year.
But, that does not have to stop you from getting the start up loan your company needs today.
So, if at first it does not work, then try and try again - meaning that you can and should be able to see how other businesses have financed their start ups and either replicate what they did using those same resources or you can use those success stories to inspire yourself to find other ways that works best for you.
Business Money Today is your place to find the capital your company needs whether it is a start up business or growing company. It is our mission in life to get you the business loan you need regardless of who else has turned you down.