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Whether you’re a brand new startup in need of some quick capital, are looking to expand your well-established business or actually fall somewhere in-between, it’s helpful to know the variety of loans available and which of them might be a good fit for your particular circumstances.

For the Startup that Isn’t a Corp Yet

These days, the news is chock-full of startups that are developing technologies, disrupting norms and making history! But how do these guys get the money they need? For brand new startups, finding funding can be a problem. Startups need to take their formation into consideration so that they are setup properly for investment. It’s only after startups have registered as a C Corp (or LLC or other corporation) that they can actively engage in raising funds through external means, namely angel investors, venture capitalists, and incubators. Not doing so is in violation of the Securities and Exchange Act of 1933.

Nevertheless, many startups need help just covering the costs of getting incorporated and getting the wheels turning on their product or idea. While they’re in their fledgling, not-yet-registered-as-a-legal-entity-stage, a friends and family loan is probably one of the best business loans they can get. These loans can be great because friends and family tend to be less concerned with credit history and more concerned with the viability of the startup itself and the altruistic goal of showing their support. In exchange for equity, a solid and convincing pitch and a clear gameplan can get startups the first round of funding they require for little to no interest. Learn about other startup funding options.

For the Young Company with a Strong Business Plan

If you’re running a corporation, pay taxes, and have already been in operation for a little while (from 1 to 5 years) you likely fall into this category. Many traditional lenders might not be likely to approve your loan simply because you haven’t been in business all that long and have not established enough of a track record for them to deem you a safe bet. Other, less old-fashioned lenders might be willing to fund you based on the strength of your business plan and the revenue you’ve earned thus far. If you have a cosigner or a decent amount of collateral, then there are a few types of loans and funding options to consider. Among the most common is a line of credit (for more immediate, short term needs) or an installment loan (for bigger costs).

If you’re in need of a significant amount of capital but can’t afford to take out a loan with a large fixed cost per month, you could look into getting a balloon loan. These kinds of loans are structured so that smaller payments can be made every month during the term of the loan and have a large repayment that’s due all at once, usually a few years into the loan term. Think of it like this: you don’t have to pay a lot each month, but at a certain point there will be a big “balloon” amount due.

For the Well Established Company

A company that’s been around the block a few times may also use a line of credit and renew it every year but it’s likely that they’ll also be considering longer-term loans, in addition to the funding they may be receiving from private investors. Although there are exceptions, long term loans tend to require a strong financial track record with a minimum annual revenue requirement (for example, at least $100,000 worth of sales).

SBA Loans for Small Businesses

The Small Business Administration (SBA) is a government agency that helps to bolster and support small businesses which need financial assistance. Whether you’re a new business with special requirements, a non-profit company, or need a loan for equipment, there are variety of unique options that can be found at www.sba.gov. The SBA serves as a liaison between you and participating lenders and are not the ones that actually provide the loans, but guarantee that they will come through.

Thanks to the SBA, there are many great opportunities available for businesses owned by women, minorities, and for businesses focused on meeting specific needs. The SBA can also help certain small businesses obtain a number of different kinds of loans, including microloans and disaster loans. Finding the best business loans requires understanding where your business is at in its growth cycle and what it needs to grow in a sound, responsible manner. When you understand your particular circumstances, you can focus on going after the loans which will best suit your needs.

 

What You Need to Know About Applying for Small Business Loans read here.

Unsecured Small Business Loans Explained

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