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The Different Ways Startups Seek Financing: Conventional and Alternative Loan Options for Everyone

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In reality, the success stories of unicorn start-ups overthrow success stories of comparatively smaller ventures. There millions of such smaller start-ups across the world who are reaching the benchmark of success while remaining outside the glare of media. Equity is, of course, the hotter financing option for the larger start-ups with total stakes worth 1 billion or more. It is the raving success of the unicorn ventures that give debt a bad name. Since over 99.95% of the small businesses and start-ups will never find venture capitalists to fund their projects, debt financing may appear to be their only viable option to raise funds.

Withdrawing personal savings and 401(k)

That being said, multiple SMEs and start-ups fail to see success due to poor loan choices. Many entrepreneurs are still choosing the bootstrapping method for funding their dreams that includes capitals from family, friends and home equity. Funds from savings accounts, tax returns, and 401(k) savings are not ideal sources of business funds. Now, the truth is they all work, but they are not as advisable. You should always stop and rethink before borrowing money from friends and family. Fresh business ventures have no guarantee of being successful, and this can bring distress in personal relationships in the event of loss of business funds.

Relying on crowdfunding platforms

Crowdfunding is another popular option for most start-up owners. It is quite similar to angel funding, and the idea comes from getting small funds from a large group of people, who believe in the power of your project to rake in profit. Crowdfunding is gathering a large group of investors, who are willing to fund a venture. It does not require a routine credit check or business experience. The fundraising process depends merely upon the power of conviction of the entrepreneur and his project proposal. The complete interaction occurs over the web, and right now, several small and big platforms support secure fundraising opportunities for all aspiring business owners.

Checking out debt consolidation companies

When you know your business might have the funds hiding somewhere in the processes, you should immediately opt for business loan management. The experts can help you analyze the funds and the cash flow of your business. Such methods often reveal the unnecessary overhead costs and the places where the money may be hiding. Companies with multiple small loans and myriads of small bills to pay have it harder when it comes to funding management. Paying small amounts throughout the month can make it extremely difficult to keep track of business finances.

In such cases, businesses can always opt for debt consolidation. It is the process of collating all existing small loans into a big one. The owners can then apply for a consolidation loan that covers all the immediate payments and leaves enough cash to fund the projects in hand. all the information you need on consolidation loans and business consolidation loan management to understand your finances better.

Broaching banks for business loans

Bank loans may sound safer to many entrepreneurs, but business loans from reputed banks often have many constraints –

  • They always check your credit score before sanctioning the loan.
  • Your credit score determines the rate of interest and the term of payment.
  • The background checks and loan history checks are rather stringent. Over 70% of business loan applicants do not meet all required criteria.
  • Traditional bank loans take time and involve a great deal of document verification.
  • Some lending offices follow revenue-based loan models that need a brief history of merchant statements.

Many of these criteria ensure that bank loans are not ideal for funding startups. Bank loans and even venture capitals are ideal for businesses that have been operating for at least 3-4 months. They are best for companies that are witnessing a stage of hyper-growth and expansion.

Approaching the angel investors

Angel investors invest on the entrepreneur rather than on the business venture. In one way, they are complete opposites of venture capitalists. They help small businesses, and start-ups take their baby steps. Expectedly, these investors are usually among the family members and friends of the entrepreneur. They are the private investors, who invest in a company in exchange for the ownership of equity.

Angel funding is just another example of equity debt. In one way that offers security in case the business fails. However, if and when the company is successful, you may have to relinquish the control of shares worth millions for a fraction of their price to the angel funders, who once invested in your venture. There are many requirements for becoming an angel investor right now, thanks to the SEC reforms. Two of the primary criteria are – the angel investor must be worth at least 1 million, and they must have an annual income of $200,000.

Other business loan sources

If none of these ways work out, do not feel disheartened. Modern technology, accessibility, and intuitive fintech features have ensured that businesses get all the funds they need within a stipulated time. You should try line of credit, term loans, credit card loans and leases to raise small amounts that can significantly accelerate the rate of business growth. You should note that credit card loans are viable, but they come with a significantly high rate of interest. Therefore, only use credit cards when you are in absolute dire need for cash and you know for sure that you can pay off the loan quickly.

Among all the featured ways of raising startup capitals, bank loans and consolidation loans provide the highest financial security. In both cases, the lending party can remain in complete charge of the payments. There are flat monthly payments of predictable amounts with fixed interest rates. In either case, the lending parties are credible, and the debtors can pay them back over a comfortable period in small installments as their ventures rake in the profit. It is always important to watch out for new opportunities and keep an open mind. It will help you take advantage of the new windows and help your business grow.

 

Author Bio: Isabella Rossellini is a marketing and communication expert. She also serves as a content developer with more than seven years of experience. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.

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