First, it’s important to understand since you won’t have a great deal of revenue, the key factor that lenders will look at is your personal credit worthiness. As you know, personal credit reports and credit scores are tools lenders and banks use to rate an individual’s credit worthiness.
Whether you are in the initial stages of starting your business or looking for additional funding to grow; prepare to be flexible and creative. Remember, your source of funding may not all come from a single place.
In fact, many entrepreneurs and small business owners piece together their funding from separate places and at various times. Funding from friends and family is a very popular option to raise funding for a startup. According to the 2012 Global Entrepreneurship Monitor report, the vast majority of startup funds (82 percent) came from the entrepreneur himself/herself, or from family and friends.
Other than family and friends, here are five quick ways to get funding for your startup:
Business Credit Cards – Unsecured revolving lines of credit in the form of business credit cards are a powerful tool to consider. Not only can it help keep your personal and business expenses separate, it can build your business credit file, provide access to cash and credit, and offers flexible payment options.
Microloans – A microloan is easier and faster to get than a traditional business loan. Amounts are usually under $50k and used for many purposes including the purchase of equipment, inventory, supplies, and working capital. The SBA works with designated intermediary lenders across the country to provide microloans to small business. Click here to find an intermediary near you.
Crowdfunding – One of the fastest ways to cast a big net for attracting investors to a business is through crowdfunding. There are many crowdfunding sites to participate in but be prepared to do your homework. It takes careful preparation and planning to run a successful crowdfunding campaign.
Be sure to review SBA’s introduction to crowdfunding for entrepreneurs.
Credit from Vendors – Vendor credit is the largest use of capital from business-to-business. It remains the number-one alternative to personal and small business loans. The Small Business Administration reports that it’s the single largest source of small business lending in the United States today. As startup, you can gain access to short term financing from vendors with minimal requirements.
It is an invaluable solution that provides a business with the ability to purchase products and services it needs upfront while allowing the business to defer payments for a later date (net 30 accounts).
Personal Business Loan – Securing a traditional business loan can be a time-consuming process and uphill battle especially for a startup. In a recent Pepperdine University study, only 34 percent of small businesses received traditional funding through their bank. This is compared to 75 percent of larger businesses.
A personal business loan is a loan made to you, the individual, based on your personal credit worthiness. Upon approval, you can use funds towards the financing of your business. Additionally, a personal business loan can take a few days compared to a traditional business loan which can take a matter of weeks.
Whether you decide to utilize one or more of these options, chances are that you may need to at some point as your business grows. Access to funding is essential to the success of a business; it’s the fuel on which a business runs. Take the time to add one or more funding vehicles to your arsenal so that you have access to capital when your company needs it.