Start-up business loans are available to entrepreneurs who are starting their own business from the initial investment. Unsecured start-up business loans are used for nearly any capital expenditure needed to launch a new business from the ground up. Business start-up loans are also commonly used for buying commercial real estate, supplies, equipment, inventory, or even to meet other financial needs. Unlike a traditional secured loan or line of equity, an unsecured start-up business loan doesn’t require security. There are many advantages to using start-up business loans, the most notable of which is that the interest rates are often very competitive. Business start-up business loans are offered by both private funding sources and traditional financial institutions like banks and credit unions.
Private funding sources include angel investors, wealthy families, and private business owners. Lenders also consider other factors before providing start-up business loan money, such as the credit worthiness of the borrowers, their personal credit history, and their ability to pay back the loans. In some cases, businesses apply for funds from government programs that are designed to assist small businesses. Many start-up business loans are also backed by local and state government agencies. Start-up business loans are intended to provide businesses with the initial start-up capital they need in order to start operations. Although the exact amount that is requested depends upon the business’s various needs, start-up business loan amounts range from several hundred thousand dollars to several million dollars.
Businesses usually obtain small business loan amounts by securing them with personal property (like jewelry, expensive automobiles, artwork, and furniture), signing general promissory notes, and by filing for and obtaining various forms of commercial mortgage. Common start-up business loan terms include the term of the loan (or months), repayment schedule, interest rate, and credit limit. Usually, start-up business loans are obtained using personal property as collateral, but this can vary depending on the type of commercial mortgage loan being applied for. Commercial real estate mortgage loans are also available.
Besides obtaining start-up business loan amounts based on a number of criteria, business owners also have to prepare financial projections (also known as business forecasts), as well as a company description and balance sheet. A well-researched business plan will help the lender determine the start-up business loan proceeds one is to receive. Start-up business loan proceeds are expected to go towards the capital cost of starting up the business. Therefore, it is very important to prepare financial projections that include a company identification, profit and loss analysis, market growth and forecast, and financing details.
The Small Business Administration provides funding and other advice to many start-up business owners. The SBA was set up by congress to assist small business owners, train them in business administration, provide marketing and advertising assistance, and counsel them on setting up their businesses and managing them. Since the start-up business grants available are primarily directed toward minorities and women-owned small businesses, business owners can also avail of start-up business grants aimed at providing them financial assistance and advice.
Start-up business financing usually takes place when lenders realize that a person or his business has the potential to generate continuous profits. Start-ups need more capital than an established company because they usually have a shorter operating history. Start-ups may need to raise additional funds for additional operations and/or to expand their current business to include a storefront. It is much easier to obtain a commercial mortgage than it is to get start-up financing. Lenders are more likely to provide start-up business financing than they are to provide personal loans.