Launching a successful startup is the new American Dream. Professionals of all age groups, backgrounds, and areas of expertise are no longer satisfied just toiling away at a large corporation for the entirety of their careers. Many dream of striking out on their own. There’s even a trend for Boomers to launch their own ventures after retiring from lifelong careers. While market saturation is what keeps some hopeful entrepreneurs from ever fulfilling professional fantasies, the expense of launching a new business is an even more prominent road block.
Contrary to startup lore, it’s rare for a new entrepreneur to walk into a VC or Angel meeting and come out with a check big enough to bring their idea to life. Investors are inundated with pitches and many budding entrepreneurs have a difficult time just landing a meeting without already having a product prototype. Furthermore, securing a standard bank loan can be equally as difficult for new entrepreneurs. Traditional loans often require strong business credit and can take months to come through, two things many entrepreneurs don’t have. Luckily for today’s startups, there’s an abundance of new financing options available to feed their entrepreneurial dreams – and quickly, for that matter. Online lenders provide value that traditional loans lack, including immediacy, data-based approvals, and, of course, full company control.
Breaking down the online lending landscape
Lines of Credit – Many startups and small businesses choose to apply for business lines of credit when they need short-term support to stabilize their business against dynamic cash flow. Unfortunately for many growing ventures, cash flow is not a given. Seasonal ventures battle periods of being flush with cash and times of virtually no customer sales or revenue. Lines of credit keep businesses afloat by supplying short-term cash flow to support everyday expenditures.
Term Loans – Term loans are provided by banks or alternative lenders with a predetermined repayment period and fixed APRs. Most startups, however, due to low or non-existent business credit history, secure term loans through online facilitators. Most term loans from online lenders do not exceed $500,000. This is a strong solution for new companies looking to make a significant, one-time investment to launch the business or introduce a more streamlined service offering with the help of advanced technology.
Merchant Cash Advance – Merchant cash advances essentially allow startups to trade a portion of daily credit card sales for cash. For new businesses low on cash flow, merchant cash advances can offer day-to-day security. Another bonus is that, unlike loans, there is no timetable required for repayment. However, some businesses shy away from this option because it means that as customer sales pick up, daily credit card payments also rise.
Equipment Financing – Most startup ventures rely on equipment to facilitate the production of goods or operational management of services. Equipment ranging from desktops to oven, refrigerators and vehicles are a financial burden on any business. The weight of these purchases is especially felt by new-to-market ventures. Luckily, startups can apply for equipment financing solutions to either buy (with a down payment) or lease equipment for a given amount of time. Determining whether leasing or purchasing is the best option for your company comes down to the specific tools and resources you need to obtain, as the useful life expectancy for equipment varies greatly.
How to determine the right loan for your needs
Not all loans are created equal. Some loans require shorter repayment periods and some are accompanied by APRs and interest rates some would label egregious. Understanding how and why you need a loan is the best place to start. Knowing the answers to these questions can save you from taking on extra expenses. Before applying to an online lender, startup owners should consider the following questions:
How much capital do I need to launch my business/introduce a new offering or solution to increase customer sales?
Is it possible for my business to thrive without obtaining this loan?
Based on my sales projections, how long it will it take for me to repay the loan?
Is the purpose of this loan to support a short-term problem like seasonal cash flow?
Mapping out how much you need, what you need the money for, how long it will (likely) take you to repay your loan, and the collateral you have available will help you determine the best source from the online financing pool to get your business off the ground.
In today’s startup environment, most burgeoning companies have difficulty securing funding via VCs and independent investors without first building and launching some semblance of the company. Luckily for them, new entrepreneurs have more access to financing options due to a proliferation of alternative online lenders. These online financing providers give entrepreneurs the gift of time. Most startups cannot afford to wait months, or even weeks, for bank funding to come through, as the market is too competitive and fast-paced to allow such a luxury. Many online lenders provide approval in as few as five days following an online submission.
Furthermore, online lenders give new entrepreneurs a fighting chance to make their business dreams come true, even without a strong credit history to fall back on. There’s even an emergence of online lending startups revolutionizing financing assessment through mobile and social media data. By offering the opportunity of financing to new companies, these lenders are giving new entrepreneurs the chance to build a strong credit background. At some point in the lifespan of most businesses, significant, bank-approved loans, are needed to expand, and the only way to obtain these loans is with good credit. By taking on loans via online lenders, and strictly adhering to repayment timelines, startups can steadily create solid financial foundations.
Ready to make your startup dreams a reality? Contact the Currency team to begin the financing process. No piles of paperwork and no months of waiting. Our platform and vast lender network offers easy and fast solutions for your new business.