Are you wondering how to get a small business startup loan? Startups need more than one source of funding. Typically, startups usually rely on a mix of financing tools to get off the ground. From startup business loans to raising money from friends, you need to have all the important details to finance your business. You can fund your startup using three main methods:
– Borrowing money
– Using your existing assets
You can use the following tactics to get funding for your startup:
Use retirement account with ROBS (Rollover for Business Startups)
ROBS allows you to invest finances from your retirement account into your startup without paying penalties for early withdrawal. This is not a method of cashing out your retirement account nor is it a loan against the account. With the right professional help, you will be able to tap into your retirement account and use the funds to finance your startup.
To make use of ROBS, your company needs to be set up as a C Corporation. If it becomes successful and starts paying shareholders, your 401(k) will get a share of the funds depending on its ownership percentage. You also need to be a fulltime employee of the business, which makes ROBS unsuitable for people who are looking to be absentee business owners.
Use equity on your home
If you are a homeowner with some equity on your home, you can get a low-rate loan (HEL) or line of credit (HELOC). You can then use these funds to finance your new business. HEL will give you the funds immediately, but HELOC allows you to draw against it as you please and you only have to pay interest depending on the balance you currently owe.
If you have 15% equity or more in your home, you can get a loan of up to 85 percent the value of your home. If you need a large amount of money upfront, HEL is the best option. However, if you do not need to use the funds right away, you should opt for HELOC to save on interest.
Getting a loan for your startup can be less time consuming than other financing options such as fundraising.
Personal loan from peer-to-peer (P2P) site
P2P lending allows you to borrow money through an online service that will match you with the right institutions or individuals. This technology empowers you to reach more investors than you would otherwise be able to reach. The largest P2P site is Lending Club, which connects investors and borrowers in a matter of minutes.
Traditionally, such sites focused on providing 3-5 year personal loans to consolidate debts or pay off credit cards. You can also use these loans to fund your startup. Recently, P2P lenders started offering small business loans, which are reserved for more established businesses.
To qualify for P2P loans, you need to have a good credit score of about 650. Although these loans are for businesses, you will be on the hook for the loan. Therefore, failing to pay the loan back will affect your rating negatively.
Use credit cards
Business and personal credit cards offer a cost-effective way of funding your startup. A small business credit card is not ideal for financing large businesses. However, it can be an essential instrument for cash flow management. With a small business credit card, you can cover your daily expenses while waiting for customers to pay.
Many business credit cards offer zero percent promotional introductory rates. Moreover, you only have to pay interest on the balance that you carry at the end of your billing cycle.