When starting a business money is usually a big concern. Sometimes it’s frustrating when you imagine of all you have dreamed about the startup and yet faced with budget constraints to accomplish all that. Most financial institutions have hurdles that keep startups from accessing their lending services. The good thing is that there are some individuals and institutions that understand the potential of startups and have opened doors to them.
To successfully navigate through from idea to a revenue generating organization you need finances. In this article, you will learn some of the ways that you can use to get a startup off the ground with startup-friendly loans.
They are people with ready cash in a surplus and willing to invest some in a business that draws their interest. Normally, they will have networks that will screen the business models and proposals prior to any investment.
This financing will take place in the early stages of development and you should be ready to give away up to 30% in equity to angels. Besides providing money, they can also offer business expertise and mentorship. This form of startup-friendly loans has proved to be a lucrative option which has seen startups like Google and Alibaba rise into prominence.
Venture capitalists are individuals who have pooled resources to form an investment firm with a professionally managed fund. They invest in startups with a high potential for generating profits. With this option, you get a debt-free financing in exchange for a certain percentage of equity.
The expertise and mentorship that they can bring on board are vast but you have to come to terms with the fact that they will be involved in the daily operations. One of the best ways to make sure the alliance is beneficial is determining how much control they can have during the pitch process. Involvement is important to venture capitalist because they must safeguard their investment.
In the recent years, crowdfunding has gained popularity and has proved to be a good option for startups. Mostly, it is conducted online where entrepreneurs seeking funds for their business will give some rewards or equity to the funders. The funding will cost between 5-10% of the money received plus some incentives.
Equity-based crowdfunding is new but it looks promising to startups. There are various options for startup-friendly loans with this:
The process is carried out privately via accredited investors. With this option, you receive access to few potential investors but you have the advantage of dealing with minimal regulations.
This option allows you to declare the crowd funding campaign in public but you can only receive funds from the accredited investors.
Here, you not only publicly announce the crowd funding opportunity but you also receive finances from almost anyone. However, it is highly regulated to protect novice investors.
If you opt for equity crowdfunding, at least realize that there will be a multitude of regulations to observe. Most of them are in place to protect the inexperienced investors.
This works great for businesses that need equipment vital in their daily operations. It also helps your business spare some money for other operations rather than spending it on equipment purchase. Startups get approved pretty fast given that the loan collateral is the acquired equipment centrally to unsecured loans where hurdles are high.
With equipment financing, you can spread out the payments over a flexible timeframe of 2-5 years. At the end of the repayment period, you keep the equipment.
Banks and equipment dealers are among several firms who can offer startup finance up to $100,000 for equipment. The annual percentage rates start at 5%.
The small business administration loans
The SBA is packed with financing programs of various types. There are some programs that are perfectly suited to startups like:
- Community Advantage Program gives access to finance up to $250,000
- Microloan Program allows you to borrow up to $35,000
Though SBA qualifications are high, you can benefit from the low-interest rates they offer and a long repayment period. For instance; the microloan program only requires startup owners to enroll in a technical assistance classes. This precondition is also very resourceful to entrepreneurs seeking to develop some business skills. The annual interest rates are between 7-9%.
Take advantage of business incubators and accelerators
When a business is in its early stages of development, incubators and accelerators are strategic sources of friendly funds. Although they are found in one package, incubators are meant to help the business at a tender and vulnerable age by providing training, tools, and mentorship. On the other hand, accelerators are used to help startups fast-track the success curve.
During the incubation period that is around eight months, you can make very strategic connections with all kinds of investors. Additionally, the incubator will be there to provide guidance and support when you decide to settle for an investor.
There are several startup-friendly loans available. Whichever method you choose, it is very important to first understand the terms and conditions before you settle on one. If you want to get your business on the right footing, the importance of a healthy and favorable financing plan cannot be underestimated.