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Creating a Startup Business: 4 Ways to Get Startup Business Loans

Are you starting a business? Whether you plan to offer services or products, you will need money to get your entrepreneur dreams off the ground. Unfortunately, most people don’t have the money saved up in their personal checking accounts to place toward purchasing or leasing a storefront, buying equipment, hiring employees, buying inventory and getting the other necessary business resources.

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You will need to obtain small business startup loans to help you get your company up to running at full capacity. Here are 4 financing options to consider:

Traditional Loans

Many people first take the traditional route by seeking out a bank or credit union to provide them with a business or personal loan. Loan amounts can vary, and banks will have stringent loan conditions. You will typically have to provide a loan package that will include your business plan, financial documents, tax returns, financial projections and credit history. It can be difficult for a start-up to get a traditional loan if you don’t have any business history or strong credit score as banks have to decide if they want to take the risk on your products or services.

SBA Loans

Many business owners turn to the U.S. Small Business Administration (SBA) loans as a way to get financing to avoid the hurdles of getting a traditional loan. The SBA doesn’t directly offer the money out of their own pockets to business owners. Banks and other financial institutions offer the loans. What the SBA does offer is a guaranty program towards business startup loans in case your business fails. If you don’t pay back the loan, the lender can still recover their money through the SBA.

There are many different types of loans offered through the SBA, such as 7(a) loans, 504 loans and 7(m) microloans.

Peer-to-Peer Lending

Peer-to-Peer (P2P) lending is a non-traditional way to obtain financing where you seek out an investor who will place money toward your startup business. You will make requests for small business startup loans on a P2P online platform as investors will pay a certain financial amount up until the full loan request amount is reached. So you may have multiple investors providing financing to your business. Then you will make small repayments to the P2P platform to pay off the loan.

Angel Investors and Venture Capitalists

Angel investors are individual investors who will provide funding to small businesses startups. The angel investor will usually be successful in a certain industry and will provide financing and mentoring for new businesses who are in the same market segment. Venture capitalists are larger firms and companies funding startup business loans. They are very selective as they seek out businesses that they are sure will reach success.

One of the similarities between an angel investor and a venture capitalist is that both seek out an equity stake in the business. They may cash out that stake once the small business is sold to a larger business or holds an initial public offering.

There are numerous traditional and non-traditional ways to seek out financing in addition to the options listed above. Determine the right loan for your startup business by deciding on the loan amount you need, what the money will be used for, and the type of loan terms you must agree to so you can get the financing.

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