SBA Guaranteed loan
One of the financing options available for start-up loans is an SBA guaranteed loan. In addition, you may apply for a small business administration (SBA) loan at your local bank. Banks often have the most flexible lending rules for businesses with little or new credit history.
Another option for business owners to explore is a peer-to-peer loan from a company such as Lending Club, Prosper, or Upstart. Peer-to-peer lending sites do not provide loans directly but instead provide a platform where you can search for an individual who will help fund your new business venture.
One of the most significant benefits of using peer-to-peer sites requires less stringent requirements and credit rating checks. On top of this, you can get a faster response and approval within a shorter period.
Merchant Cash Advance
Another start-up loan option available today is an alternative lending product or merchant cash advances. For example, business owners can withdraw a portion of their daily credit card sales as cash instead of waiting for the end of the month.
The downside to this is that the interest rates tend to be higher than traditional bank loans. However, if you feel like your business needs quick cash to maintain growth or provide working capital, these alternative lending options are the best option.
Other options for start-up loans include micro-loans and angel investors or venture capital firms. Micro-loan programs provide small businesses with start-up funding to help get their company off of the ground.
Unlike traditional bank loans and other alternative lending options, micro-loans often require fewer start-up requirements. In addition, one of the most significant advantages to micro-loans is their approval within a short period, making them an excellent resource for businesses in need of quick cash.
Small Business Administration (SBA)
SBA provides Small Business Loans for California-based businesses with 500 employees/year and generating at least $1 million in annual revenue. The loans are available for working capital, machinery & equipment, inventory/supplies, furniture & fixtures, acquisition of land or buildings, or refinancing.
It is a requirement to have business experience of at least one year and have good credit scores of 640 and above. In addition, you must have sufficient personal assets to secure the loan and at least a 30% ownership stake in the company.
Angel Investor or Venture Capitalist
An angel investor or venture capitalist is an individual who provides money for a business in exchange for equity in the company. Equity financing is suitable when looking to secure a loan of between $500,000 and $5 million.
A significant downside to this type of funding is that it can be challenging to find the right person to provide the financing, and even if you do, they will be looking to take a majority share of your company. As a result, you will have less control over company decisions which may not always benefit your business in the long run.
Another option for start-up loans is peer-to-peer lending. A significant advantage of this type of financing is that it has more straightforward approval terms than other traditional lending options.
Many companies who use peer-to-peer lending require a minimum credit score of 640, whereas most banks require a 650 or higher. In addition, peer-to-peer lenders cannot use the same underwriting tools that traditional lenders use to approve or reject loans.
With peer-to-peer lending, you also need to be careful of fraud since these lenders are not subject to the same regulations that banks are when it comes to fraud. Therefore, peer-to-peer lending requires a higher level of due diligence.
Organizations often give grants with funds to help new businesses start, grow and expand. Grants differ from loans since they are not repayable.
You will need to submit a grant application detailing your business plan and financial projections. Grants often require entrepreneurs to apply through their state’s Small Business Administration (SBA) office.
Small business loans are investments by private financing companies that help upcoming businesses cover their start-up costs. The best loan and grant options for starting a new business in California are often options for entrepreneurs who have trouble getting a loan from traditional banks.
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