Types of Startup Loans Entrepreneurs Should Consider

PROMOTED

Nowadays, many entrepreneurs decide to launch their own business. Startup companies may have a lot of potential these days but you can’t get far without capital. As a matter of fact, 38% of startups fail because they ran out of cash or failed to raise new capital.

If you don’t have enough funds to support your business until it becomes profitable, you might close down the shop sooner than you think. Fortunately, there are plenty of financing models for startups that can help you pull through.

For example, lenders, such as Ark Kapital can provide you with invoice financing loans so that you’ll always get paid on time. There are also long-term solutions that will allow your startup to grow. With that in mind, here are a few types of startup loans to consider.

Bank loans

The most common type of startup loans are bank loans. It’s as simple as it sounds. You go to the bank and apply for a loan or line of credit for your startup business. You may be required to provide collateral for the loan and meet certain conditions before the loan can be approved.

However, banks tend to check all of things, such as your personal credit score and credit history before they consider your application. If they don’t like your creditworthiness they may deny your loan application or charge you with very high interest rates. So be mindful of such factors when you go to the bank for a startup loan.

Alternative lender loans

Alternative lenders are financial institutions that are not banks. They look more favorably on entrepreneurs and startup owners who are applying for financial aid. In other words, they don’t mind if you have a bad credit score as long as you pay your dues on time.

You’re also required to provide collateral for the loan but you’re more likely to get short-term financing loans. Sometimes, that’s all you need to ensure that your startup business is moving forward. If you don’t like the deal a bank is offering you, you should definitely give alternative lenders a shot.

Investor aid

If your startup has potential for growth and profitability you may get investor aid loans like venture capital and angel investment. These types of loans will set your business for life. However, there’s a catch. You must first convince investors that your startup has what’s needed to succeed and become very profitable in the next three to five years.

Venture capital investors look for profitability and they will ask for a percentage of your company’s shares once it reaches the stock market. Angel investors, on the other hand, look for socio-economic value of your business and will ask for 25% ROI for their financial aid. Therefore, make sure you consider your options well before you opt in for investor aid loans.

Closing Words

There are many types of startup loans that can help your company survive the startup phase and allow you to venture further into the market. Many entrepreneurs decide to bootstrap or borrow money from friends and family. Unfortunately, such sources are often limited and you might need a loan either way.