Getting a startup business loan is never going to be easy without a convincing historical income. We know that business growth and expansions need cash support. For instance, a 2013 study conducted by four researchers from the University of Texas, University of New York, University of California and University of Los Angeles found that startups that received funding actually generated more revenues and created more jobs for the economy.
But, you might have to hold off the whole entrepreneurship idea if you don’t have access to sufficient amount of funding. If you’re trying for some startup business loans from the banks, you’ll have to know about various loan options available,. And what type of problems you might have to endure and how to manage one successfully.
Are the banks really supportive in providing startup business loans? A study conducted by Biz2Credit included 1,000 rejected applications of startup loans.
The findings of the study indicated that the major banks that rejected the applications were Bank of America, JP Morgan Chase, Wells Fargo, TD Bank and PNC Bank. Some reasons why banks reject startup business loans applications may come from bad credit, low collateral, cash flow problems among others.
Is Getting Startup Business Loans Really Necessary?
Tableau Software became a $100 million business without the back up of venture capital. The entrepreneurs, however, made a lot of sacrifices in the initial years. Christian Chabot, CEO and co founder of Tableau Software, said that they avoided venture capital deliberately.
While talking about the time of business establishment, Chabot said that they had to work almost for free those days. They downsized their personal lifestyle to save money and help the starters. So, his advice for the entrepreneurs would be cutting out some of the unnecessary comforts if they don’t want to depend on startup business loans solely.
How to Improve the Chances of Getting Startup Business Loans?
If you’re really after a loan, try to keep your credit history clean and healthy. Your credit report should reflect diligence in paying the debts. The second thing you should keep in mind is keeping a track of the cash flow. Try to calculate your quarterly cash flow and keep it healthy to get a small business loan. Additionally, you’ll need to have an organized, quantitative and detailed business plan to be able to impress the banks. Forecast your future earnings and mention it in the business plan to help the lenders know whether the business is potential enough to pay back the startup business loan.
When you apply for the loans, prepare a pickup line. You should be able to tell the lenders how you’re going to use the capital, make the repayment and what other back-up plans you have for the worst circumstances.
Alternative to Startup Business Loans
What will be your plan B if you don’t get the capital? You can try Small Business Administration (SBA) loans. The process takes 60 to 90 days for final approval and is allowed in amount of $150,000 or even more. However, you’ll need to have a minimum two years of operational track record to be able to successfully get the loan.
Alternatively, you can try getting loan from the online lending services such as OnDeck and Kabbage. If you can sell some of your products before the official launch, it can help you make some amount of capital. Home equity loans can be managed at a very cheap rate. Sell some of the valuable assets if necessary. Rent your home or try equity crowdfunding. But be sure to read the fine prints when you get into crowdfunding.