How to get a startup business loan with no money

HOW TO GET A STARTUP BUSINESS LOAN WITH NO MONEY

Now that you have a business running or planning to launch your new product to the market, there is a lot to think about. At the very least, money. Money to launch, to expand, or to keep your struggling new venture afloat. Loans can be a curse and a saviour for your business if used wisely.

Securing a loan for start-ups and growing businesses can be challenging compared to well-established businesses. Not impossible but challenging if you don’t know the ropes. As a new business owner, it is important to understand the discipline of debts and how to go about securing good loans. Yes, it is possible to get bad loans that can cripple your business to its death. It is always important to do your research, learn more about loans and strategize on how to use that loan properly.

Simple Steps to Securing a Loans

On the bare minimum as a new business owner to improve your success rate, familiarize yourself with types of financing, credit scores, different lenders and other factors in loans.

Here are a few steps to securing a startup business loan.

1.     Evaluate your needs

Understanding your needs and the kind of loan that will best suit your needs is the first step. This step helps you identify the suitable type of loan, the reasonable use for loans, the loan period and most importantly the repayment strategy.

If you are securing a loan, it is important to have a concrete strategy to repay the loan in time, whilst considering the interests.

While evaluating your needs, the question of the capacity to repay should also be juggled. Let me put this in perspective:

Your monthly net income is approximately $100,000, and you need to increase your sales and open new branches to help out with that. The approximate cost for this expansion is around $ 1M. In estimate, you are expected to make approximately $400,000 monthly. If the loan has an interest of 12% p.a., that would mean that it costs $10,000 monthly. If you were to secure a loan of $10M, then you would be capping out your existing profits. Thus, possibly crippling your ability to run the existing business and repay the loan, if anything went wrong.

• Identify the need
• Understand the risks
• Make a plan
• Plan of sourcing outside the loan.

2.     Identify The Right Kind of Loan Based on Your Needs

Most business owners, even startups run for loans from traditional banks and credit unions as their first choice. Although not ill-advised due to their dependability, familiarity and functional operations, there are several other types of financing options that you can choose from. The common options include:

• Online term loans: These are loans you can apply for and manage entirely online. They typically have fixed interest rates and repayment terms, making them predictable and convenient for business financing.
• Crowdsourcing: This involves raising small amounts of money from a large number of people, usually via online platforms. It’s a popular way to fund creative projects, startups, and small businesses without taking on debt.
• Microfinance loans (Microloans): These are small loans offered to entrepreneurs and small businesses that might not qualify for traditional bank loans. They are often provided by non-profit organizations and are designed to support economic development.
• Asset-based financing: This type of financing uses your company’s assets, such as inventory or accounts receivable, as collateral for a loan. It’s a way to secure funding based on the value of your assets rather than your creditworthiness.
• Business loans: General term for loans specifically designed for business purposes. They can come from banks, credit unions, or online lenders and can be used for various business needs, from startup costs to expansion.
• SME loans: Small and Medium-sized Enterprise (SME) loans are tailored for small and medium businesses. These loans can help with working capital, purchasing equipment, or other business expenses, and are often offered by banks and financial institutions.

3.     Research and Find the Best Option

When it comes to business, no two needs are the same, they are both independent and unique, so you cannot necessarily rely on someone else’s research. And this is the mind that will get you the best decision-making in business.

After evaluating your business needs and the options available, you might qualify for different types of loans from different lenders.

In this case, consider the following factors:

• Annual interest rates: This is the percentage of the loan amount that you’ll pay annually as interest. It’s a crucial factor in determining the overall cost of the loan. Lower interest rates mean lower overall costs.

• Fees and additional costs: Loans often come with various fees, such as:
  • Origination Fees: Charged by the lender for processing the loan.
  • Application Fees: Fees for applying for the loan.
  • Late Payment Fees: Penalties for missing a payment.
  • Prepayment Penalties: Fees for paying off the loan early.

These fees can significantly impact the total cost of the loan.

• Lender reputation: The reputation of a lender is important as it reflects their reliability and customer service quality. A reputable lender is more likely to offer transparent terms and fair practices. Checking reviews and ratings can help you gauge a lender’s reputation.
• Terms of service and loan service: As a business, it is crucial to always know, the devil is in the details. With every contract and every agreement always have a qualified person such as a lawyer, advocate or financial advisor go through it and determine how business-friendly it is. Most businesses go down from wrong business decisions or uninformed business deals.

4.     Get Your Documents Ready

Documents required by lenders vary; online terms do not require as many documents as traditional banks. At the minimum, you will need documents to verify your business’s existence and identity and compliance documents such as registration and tax compliance. Other financial records such as credit standing, credit card statements, bank statements and Credit Clearance could also be requested.

As an added advantage, a business owner may draft a business plan to improve their odds by showing potential lenders future revenues and projections.

5.     Submit Your Application

Upon selecting a lender, ensure that you are well-versed in its application process and that you have assembled the appropriate documentation. Application and underwriting processes differ per lender, so find out whether you can apply online or over the phone—or if you’ll need to visit a location. Following the submission of your application, a lender representative may contact you to seek further evidence, such as proof of collateral or financial records.

What You Need to Qualify for a Startup Business Loan

The business of giving loans is all about security for the loan to the lenders. As such lenders will always require a number of documents to verify and proof of existence and ability of the business to repay the loan. The lender also needs to ascertain that your business exists and is legitimately registered.

When applying for a loan, you will typically need:

• Proof of residence
• Business details and certificates
• Business plan
• Credit scores
• Collateral or Proof of ability to repay
• Business Revenue Statements
• Track record of operation

How To Improve Your Business Credit Score

With a bad credit score, most lenders will be very reluctant to give your business loans. The ability to prove the security of a loan is the first thing to all lenders. First, you will need to prove that you are a reliable business and committed to repaying the debt.

For a successful business, this can easily be done with proof of stable revenue and financial records.

However, here are a few more things that you can try to improve your chances:

• Improve credit score: Improving your credit is a sure way to secure your next loan. Starts with getting in touch with your financial standing and making a payment plan, for existing loans and debts.
• Improve your credit track record: If you have a bad credit score from previous loans or debts, you can build a good track record using microloans. Taking small loans and repaying them before getting a bigger loan. It’s a crude way but it works.
• Use special program loans: Special program loans, launched in support of business with government incentives or non-profit incentives offer different terms that might favour your business even with bad credit scores.
• Partner with lender programs.
• Leverage assets and business opportunities: A startup business loan can be hard to secure for first-time loans. If you can leverage your assets it can be a good way to show goodwill and ability to repay the loan.

Pros and Cons of Startup Business Loan

When considering taking on debt for your new business, you should examine the following advantages and cons:

Pros

• You retain full ownership of your firm without giving up stock.
• Predictable Payments: Fixed-rate loans provide predictable monthly payments, making budgeting easier.
• Cost Distribution: Spread out the early expenditures of beginning a firm across several years.
• Credit Improvement: Making timely payments will improve your credit score, which can help future financing prospects.

Cons

• Securing a loan can be challenging, particularly for small firms.
• High Costs: Fees and interest rates might be significant, raising the total cost of the loan.
• Collateral Requirements: You may be required to give assets as collateral, which is dangerous.
• Financial Strain: High loan payments might strain your company’s finances, potentially resulting
• Personal Liability: If your firm fails, you may have to return the loan with personal cash.