About 30% of all startups fail by the second year. That makes it hard to secure financing and build your startup venture.
You might not be able to get a loan from a traditional bank, but you do have some alternative options.
The decision to select a business loan is a big one. That loan is likely to stay with you for years, whether you stay in business or not.
Read on to learn how to choose a business loan that’s perfect for your startup.
1. Know Your Goals and Needs
Lenders want to know what the funds are used for. You have to have a good answer to get a business loan approved.
Your answer also determines how much money you need. For a small amount, you could get a personal loan. If you need a large amount, you’ll try to get an SBA loan.
2. When Do You Need the Money?
You have more leverage if you don’t need the funds immediately. You have time to analyze different business loans and get the best terms possible.
You don’t have that luxury if you need cash now. Those loans tend to be more costly to your business. You may end up using a credit card to pay for the immediate need.
3. Business Loan Providers
Where you get your loan from has an impact on the interest and terms of the loan.
An SBA loan is guaranteed by the government, so you’re more likely to get a favorable interest rate. You can read more about SBA lenders here.
Peer-to-peer lenders are investors who lend money and make money on the interest rate. They’re likely to charge a much higher interest rate than other options for loans.
4. Administrative Fees
There are likely to be additional fees with your loan. These fees are often origination fees, administrative fees, and prepayment fees.
Lenders aren’t always transparent about these fees. Be sure to check the paperwork or ask your lender directly about the fees.
5. Other Requirements
You might not think that a loan is a big deal because you’re going to pay that money back. You need to read the loan terms and conditions carefully because there are things that will surprise you down the road.
In some cases, you’re taking on a business partner. Lenders could have a say if you choose to relocate your business. They will also ask for business collateral if the loan is above a certain amount.
Protect yourself from these headaches and read every detail of the loan document before you sign your business away.
Select a Business Loan and Grow
Business loans are useful for startups because they provide the capital needed to expand and grow. You need to select a business loan that’s a good fit for your business.
Consider your business needs and look at various providers. Consider the interest rates and loan terms and conditions before you make a decision.
For more tips to build your startup, check out the other articles on this site.