Starting a new business is not as easy as many people would think. The hardest part of starting a small business is acquiring a start-up loan. According to the Small Business Administration, one-third of new businesses fail within their first couple of years, and less than 50% of new businesses last more than four years. One of the main reasons that new businesses fail, is because of the lack of financing.
Where to obtain a start-up loan?
There are many different places that a person can go to and try to obtain a start-up business loan.
A financial institution such as a bank or credit union, especially one you already have a relationship with, is a good place to apply for a small business loan. When going through a bank or credit union, the borrower is sometimes able to speak with the lender who will be making the financial decisions, allowing the borrower to build a relationship with the lender. Business lenders
A business lender is another place to obtain a start-up loan. A business lender is not a financial institution, and most of business lenders specialise in small business start-up loans, making them highly likely to grant an approval for a start-up loan.
A business lender may require some form of collateral in case the borrower defaults. A business lender may also require a down payment, part equity in the business, or a personal guarantee, prior to approving the loan. Friends or family
Obtaining a loan from a family member or a close friend is another way to get a start-up loan for your business. This kind of loan is sometimes less expensive, and the interest rate and terms of the loan can be agreed upon by both parties involved.
How to get approved
When trying to get a small business start-up loan, many lending places requires a lot of documentation for the approval process.
The more detailed a business plan is, the more likely a loan will be approved. The business plan should include financial statements, a business strategy, the owner’s background, and the business goal. Cost analysis
Most lenders would like to know where exactly their money is going. They are interested in how much money is going towards inventory, building rental, payroll, and equipment.
As we all know, credit is very important when trying to get a loan. Having a good credit history and credit score is a good key to getting a start-up loan.