How To Get Money for Startup | Best Business Loans & Other Quick Cash Options
Starting and further developing a business is almost impossible without investment: an entrepreneur needs to start looking for ways to get money for business at the planning stage. There are various funding sources and methods for growing your own business from scratch without a solid start-up capital. We tell you how to get a business loan and how to prevent getting into a debt hole.
Why is money needed in a business?
Making an investment loan is suitable for many purposes related to business development. For example:
- purchase of a car;
- purchase of equipment;
- modernization of production processes;
- building or renovation;
- purchase of real estate for business;
- repayment of debts.
Businesses may need finance for other purposes, but these are some common reasons why businesses apply for funding.
How much does it cost to start a business?
Many factors influence how much it will cost to start your business. The amount of money you will need is affected by the type of business, the equipment required, office space needed, cost of utilities in your location, the staff you employ, the need for market research, and so on.
It could cost as little as $1,000 to start a small, home-based freelance business, or over $100,000 for a more complex business.
The SBA website has a startup costs calculator to make it easier you to estimate your startup costs.
9 best fast ways to get money for business
Applying to a bank is the first option for small business financing.
In 2022, banks offer many loans for small and medium-sized businesses: it will be easy to choose the right one. US banks offer limits anywhere between $5,000 to $200,000 and can sometimes provide funds within 24 hours (depending on the goals, type of business, etc). Bank loans have a number of advantages:
- quick verification and response to the request, especially if you have a sound business plan;
- a wide range of loan products that are constantly updated;
- if you have difficulty repaying a loan, you can opt for refinancing.
However, if the business is not successful, the entrepreneur will have to deal with a large debt. If the business plan indicates a high risk of non-repayment or the entrepreneur has a bad credit history, then the chances of loan approval are close to zero. Individual entrepreneurs, self-employed and limited liability companies can get a bank loan for business needs.
You can quickly get additional funding for business in a microfinance institution. Microfinance organizations offer payday loans for business with no credit checks and no paperwork. Payday loans are typically issued around the clock online and are known as loans with guaranteed approval.
Fast business loans without collateral and guarantors are in high demand, which is justified by a number of advantages. The borrower has the opportunity to receive a quick loan to start a business from scratch or to promote an already functioning business, without informing the lender about the loan purpose.
Most microfinance institutions offer the opportunity to apply for a loan and receive funds online. Thanks to automation, the borrower can expect to receive money in 5-15 minutes without leaving home, on holidays and weekends – around the clock.
To apply for a payday loan, you need some kind of identity verification. Income proof certificates, collateral and guarantors are not needed. Microfinance institutions have relaxed requirements for borrowers, so almost every adult US resident, including those with bad credit histories or outstanding debts, can get a payday loan for business.
The popularity of payday loans is determined by the advantages of these loans over bank products:
- easy online application;
- available 24/7;
- same-day funding;
- easy-to-meet requirements;
- no paperwork;
- convenient repayment options;
- flexible terms;
- bad credit is accepted;
- minimum age limit (18 years).
Despite the significant advantages, payday loans also have downsides:
- interest rate is higher than in banks;
- loan term rarely exceeds 31 days;
- amounts vary between $100 and $1,000 (sometimes up to $2,500)
Despite this, in an emergency situation, a payday loan will help solve urgent financial problems.
Banks loans come with lower interest rates, but statistics show that the number of payday loan users is increasing. This is explained by the fact that in some cases a payday loan is the only available option and there are no alternatives.
Not every borrower can visit a bank branch to apply for funding. Therefore, more and more consumers choose microfinance institutions that provide a convenient online application service. An application can be submitted remotely, and money can be transferred to the borrower’s bank account within 24 hours or even instantly.
Payday loans are a worthy alternative for those novice businessmen who have a bad credit history. They are available to students, retirees, the unemployed, and even those with existing debts.
Today, there are many payday loan offers on the US market, and it may be difficult to choose the best one. Not all lenders are equally honest with clients, some are misleading and provide low-quality service. Therefore, you should trust proven and reliable microfinance institutions. We also recommend reading our guide on how to fight online lending fraud.
Find an investor
The synergy of a promising business idea and finances can turn into a profitable project, you just need to find an investor. Attracting a private investor is associated with obtaining finance for the development of the project, each stage of which is recorded in the business plan. This format implies the registration of a limited liability company or the conclusion of an agreement, the terms of which ensure the protection of the rights and obligations of all participants. To find investors, you can use the following recommendations:
- visit thematic exhibitions and seminars;
- present a project on online startup platforms;
- visit websites to find angel investors, which allow not only to find a source of financing but also to receive tips on the conduct and development of the project, which prevents the dominant number of errors.
- use business incubators and accelerators focused primarily on supporting young entrepreneurs.
The conditions for receiving funds and support depend on the type of investor, as well as on their requirements. It is worth preparing for the fact that investors will check the entrepreneur, so it is important that you have no outstanding loans, no legal problems and no negative reputation.
Borrow from friends
Borrowing funds from family or friends is the best solution for entrepreneurs who wonder “how can I start my own business with no money?”, who have been denied a bank loan and cannot start a collection as part of a startup support. The key advantages are zero interest rates and flexible terms: friends can offer you an installment loan for business, and if you need extension, it will be easier to get it when compared with the banking sector. One person may not have enough free money to lend, so it is often necessary to borrow from several friends. Debt obligations may be secured by verbal agreements or a notarized receipt that protects the rights of the person providing funds and regulates the obligations of the borrower.
Apply for a line of credit
A line of credit is not recommended as a sole source of start-up funding, but may be essential for the start-up phase. No matter how smart your business plan is, there are always unexpected costs or expenses that you’ve not planned.
We recommend that you consider this source of funds before you start a business by having established a relationship with your local bank manager and by ensuring that your credit score is good. A business line of credit typically ranges between $10,000 and $500,000.
Government business support programs in the United States are very diverse. The country actively supports entrepreneurs in the following programs:
- concessional financing, subsidizing and lending;
- provision of various infrastructures for the promotion and development of products and services;
- reduction of the taxable base;
- acquisition of equipment, real estate, land.
In the U.S., there is a government organization that brings together entrepreneurs in various fields. There are certain benefits in the import-export area.
Support programs for small and medium-sized businesses can be general and targeted. Target programs are constantly changing. They depend on the specific sector, which requires support. The federal government has its own opinion on this matter, and the state governments have their own.
Below are the recent hot topics actively supported by the US Government:
- alternative energy sources;
- rehabilitation of drug addicts;
- alternative modes of transport.
The official website of the federal government (SBA) provides up-to-date information on US government support for small businesses. Each state has its own department with similar functions, for example, Nebraska State.
In addition, there is an opportunity for private companies to receive certain grants from the state in various areas. The process of applying for a grant is usually quite simple and straightforward, and it is quite possible to do it without the help of outside specialists. Grants are mainly issued by the Federal Government. You’d better get information about grants on official government websites such as Grants.gov and USA.gov.
In the U.S., getting a loan for a start-up business is quite easy if its owner has a good credit history. To do this, there are certain types of loans that are a little easier to get since they are in some way guaranteed by the government, and financial institutions themselves are much more willing to issue loans on favorable terms. There is such a structure as SBA (Small Business Administration) – an agency under the government that deals with:
- support for small and medium businesses (events, networking, infrastructure);
- execution of agreements with financial institutions on the provision of various financial conditions.
Favorable terms are negotiated between the financial institution and the SBA. In this case, the government guarantee means that if a financial institution gives a loan to a young company that does not repay this loan in the future, the government guarantees payment on the loan to this financial institution.
The 3 largest US banks with tight integration with the SBA are Bank of America, Chase, CITI.
Entrepreneurs have the opportunity to work in niches that do not require start-up investments or require minimal injections. This approach allows you to collact money that will be used to promote and scale the business. The following should be considered as priorities:
- Dropshipping model. To start, you will only need a platform for sales: an online store website, a group on a social network or a messenger. You will act as an intermediary: you will enter into agreements with the manufacturer, put up his goods and start accepting orders, as well as payments. The cost of production includes the dropshipper’s markup, which is your profit. Logistics processes will be provided by the manufacturer: he will collect, pack and send orders;
- Work on marketplaces and trading platforms. You can enter the marketplace with low-budget goods or hand-made products;
- Provision of services. You can do cleaning or consult in the area in which you are an expert, or choose another area.
This method allows you not to take on credit obligations and not depend on the requirements of investors, however, the process of collecting funds can be delayed for at least a year. The risks are minimal: if the business does not work, then everything can be started anew, but with a different idea.
The crowdfunding method is a promising solution for business projects of practical, social or other value. The bottom line is that platform participants combine their financial efforts, directing them to support the project they like. Financial and other initiatives are voluntary, the collection is carried out via the Internet.
Here are some of the best crowdfunding sites for startups 2022.
To start collecting funds, you need to:
- form the concept of the future project;
- set goals and carry out business planning;
- select a platform from the register, then find reviews about it, information about the period of work, hidden fees and other information indicating reliability;
- get acquainted with the terms of cooperation: a list of required documents, charged fees, interest for services, hidden fees, etc;
- draw up an investment proposal: specify your obligations, describe goals, indicate the terms and amount (minimum and maximum), others.
After the launch of the collection, the investment agreement will be concluded automatically between the author of the project and the users who provide financial assistance. The audience of the platforms is active and loves fresh ideas, but it can take a long time to raise funds to start a small business (an online clothing store or a beauty salon). Before the start, it is recommended to study the legislative norms regarding crowdfunding and the rules of interaction between platform participants.
Search for a business partner
Attracting a business partner should not be confused with investing. In this format, all costs are divided into two or more parts, depending on the number of partners. All participants have equal rights and obligations, it is possible that everyone is responsible for their part of the work: the first is looking for suppliers, the second is in charge of marketing, and the third analyzes the available investment flows. Cooperation with partners implies the creation of a business in the form of a limited liability company. The advantages of opening a joint business are as follows:
- joint and several liability;
- equal distribution of financial injections, cooperation in the “we use what we have” format. For example, one of the co-founders has a workshop, the second has equipment, and the third has funds for the purchase of industrial raw materials: by joining forces, they will create a profitable business;
- the opportunity to sell the business at any time, in which case all founders will receive equal shares or those that correspond to the volume of injections into the promotion (negotiated before the launch of the project).
There are also downsides. There may be conflicts between partners who have different visions for the project development, and there may be situations in which the founder will demand to sell the business or want to withdraw his money from it. You can start searching for partners in social networks, on bulletin boards and special sites.
How do I qualify for a business loan?
To qualify for a business loan with a bank, a small business owner needs:
- Good credit score. Check your credit score and try to improve it, if needed.
- Enough cash to cover outstanding loans. Your existing cash must cover not only debts and loans you already have but the new loan as well.
- Strong assets. You’re more likely to qualify for a business loan with a bank if you have enough assets (such as cash and accounts receivable—or money owed by your clients) to cover the loan should you default.
- Several years in business. This isn’t an obligatory requirement, though. There are funding sources that are available to new businesses.
- Correct financial statements. Banks may prefer accountant-reviewed financial statements. You’ll need a complete and correct balance sheet, income statement, and cash flow statement.
If for some reason you do not qualify for a business loan with a bank, you still do qualify for a payday loan. To get a business payday loan, you just need to:
- Be at least 18 years old.
- Have an active checking account.
- Provide some proof of income as well as valid identification.
Things to consider when getting a business loan
Consider a loan term
It should not exceed the terms of income generation. It may take time for the company to make a profit that will pay back the debt. For example, farmers and their seasonal business. When taking loans, they have to take into account the terms of harvesting and selling the crop and reflect this in loan agreements.
Choose the right lender
It is better to choose a reliable company that actively lends to the business. They can offer you exactly the loan that suits you best.
For example, there are lenders that offer loans for business startups without collateral and financial guarantee. The lending decision can be made within 1 business day.
Borrow no more than you need
If there are too many loans, they will pull the business to the bottom. Sometimes small companies try on the development model of large ones, which are actively growing precisely due to loans. The share of borrowed funds in the capital structure of a large business can exceed 50%, and the debt can be many times higher than the annual profit. But large companies have those tools and opportunities for financial maneuvering that small companies do not have: selling shares, issuing bonds. Therefore, SMEs (small-to-medium enterprises) should not focus on such indicators.
How to choose the right business loan
There are many ways available to help raise funds for business development: they have different terms, conditions and legal form requirements. For non-standard projects of value to society, it is worth using crowdfunding or fundraising, which ensures that money is received in a relatively short time. If you plan to open a production facility, a catering point or an online store, then it is better to pay attention to bank loan products, borrowing from friends or niches that do not require solid injections and provide an opportunity to develop the project at the expense of net profit.
Payday loans are usually used if money is needed urgently, for example, to cover small business expenses you have not planned. To get a bank loan, you will need to provide a lot of documents, and the application may be considered for up to 7 days. Microfinance organizations, on the contrary, issue loans instantly and for any purpose. Knowing a few tips will help you choose the right payday loan provider.
Investing and attracting partners is a good solution for global projects and entrepreneurs who are not afraid of collective responsibility and are ready to share the business with other people. When choosing a method, it is important to estimate in advance how much money will need to be returned and how much you will need to pay each month. Ideally, the amount should not exceed 20-30% of net revenue (after promotion), otherwise, the business is considered unprofitable: the entrepreneur will direct funds to pay off the debt, without having opportunities for productive development, expansion, and marketing.
Frequently Asked Questions
How fast can you get a business loan?
Payday lenders can approve and fund business loans online the same day you apply. Bank and SBA lenders, on the other hand, may process your request for several days or even weeks. In general, funding speed varies based on the creditor, loan type and amount requested, among other factors.
How can I get a small business loan without collateral?
Payday loans do not involve collateral (property or assets like cash). SBA loans under $25,000 usually don’t need collateral, either.
How fast do business loans get approved?
SBA loans are typically approved and funded within 30 to 90 days. Bank loans can be approved within a few days. Payday loans get approved in seconds in 95% of cases.
Can you get a business loan with bad credit?
If you have poor credit, you can typically qualify for a bad credit business loan with a payday lender. In general, you’ll need a score of at least 500 to qualify for a business loan from a bank or alternative lender If your score is over 600, you’ll have more options.
What is the easiest business loan to get?
Online payday lenders usually offer the easiest business loans to qualify for, although interest rates are higher than other funding options. These loans are typically fast to fund, with straightforward application processes.