Getting loans for small business startups is not an easy task, the reason being that startups are not eligible for loans from banks. But there are several other ways of financing your business. To find the most convenient means of funding a business, you will have to look under the rocks.
Here are some of the ways of getting good loans for startups.
1. Using retirement account (ROBS)
Rollover for Business Startups, known as ROBS, allows you to invest the funds from a retirement account without requiring you to pay any early withdrawal penalties. You do not have to pay income taxes either. With adequate professional help, you can use the retirement account for a new business. To utilize ROBS, it is essential that the company is set up as “C” corporation. If the company becomes successful and starts generating profits, then a portion of the money will go to your 401K, the amount of which is calculated according to the percentage of ownership. You can consult a ROB’s specialist to make the best of opportunity.
2. Peer-to-Peer Loan
There are Peer-to-Peer websites which focus on offering personal loans for three to five years. The aim of the loan is to pay off the credit cards or debt consolidation. Personal loans can be used for starting a business.
The problem with this type of loan is that you will be eligible for it if you have good credit score. If your credit rating is not okay, then do not waste time trying to get this loan.
3. Conventional Bank Loans
The biggest advantage of these loans is that they have pretty low interest rates. The rates are low because there is no involvement of any federal agency. These loans can have a shorter time for payment as compared to the SBA loans. They can often include balloon payments. It can be a little difficult to get approved for the loan.
4. Alternative lenders
For small business startups that lack strong financial history, the alternative lenders sound like a very attractive option. They mostly offer online applications. The decisions on approval are made in just hours, and the funding is provided within five days of the request.
The benefit of working with alternative lenders is that you have a chance to finance your business even without a strong financial background. There are a few limitations about the usage of the loan, but approval for the loan is instant. The drawback is that the interest rates can be higher as compared to the ones charged by banks.
5. Using credit cards for financing a startup business
It can be a cost-efficient method of paying for the startup. Several credit cards offer zero percent interest promos. During that period you can borrow money free of any interest. There are rewards and cashback programs. These programs allow you to earn money for your business by just charging the purchases of the card. Some cards allow you to make $500 by only signing up for the card and making a few purchases in the first few months.
Business credit can be built by responsible use of the card. Credit cards are also sufficient for good debt consolidation tool. You can transfer balances and save money on interest by taking advantage of the zero percent interest.
The disadvantage of credit cards is that they are not a stable source of credit. The credit card companies have the right to lower the credit limit without any warning. The interest rates are high as compared to other sources of capital. Using personal credit cards for business can affect the individual credit card score.
6. Borrowing from acquaintances
Pitch your idea to your friends and family. If they like your idea, they will be willing to contribute some money for the startup. Remember to get the loan in writing so there is no misunderstanding later on.
7. Use crowdfunding
You can focus on raising small amounts of money by involving a large number of people. This can be done by using a crowdfunding website. There are different ways of crowdfunding.
You can build a strong foundation of your startup by opting for any of these short-term loans. They will give your start up the boost it needs while giving your investment a security blanket as well.
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