The Truth About 4 Credit Options For Startups

Trying to get off the launchpad for your new startup can be daunting. Unlike established companies that have disposable money to try new ventures, your startup is your baby and you want to see it thrive. However, there are some hick-ups you have to face along the way and a major one includes having the right finances. A startup has no business credit, therefore, it has to rely on your personal credit as a means of funding. These credit options will however be a good break from using personal finances.

  1. Personal loans

Based on your personal credit, any lending institution is ready to give you some cash flow. Remember, the loan will be based on your credit score and not that of the business, so it’s your sole responsibility to pay back the loan. An advantage of personal loans is that you can borrow a small amount to test drive your startup. If it is a success, repaying the loan and re-borrowing is always within your means. The down-side of this option is that credit built with timely repayments is usually under your personal credit and not that of the business. 

  1. Invoice factoring 

If you have been asking yourself what is invoice factoring, you came to right place. Invoice factoring is selling your unpaid invoices so as to fund your cash flow needs. If you need a loan because you can’t sustain the cash flow demand, this is the best option for your business. Once you sell your invoice, you must give your service provider the client information so they collect the money once the invoice matures. The service provider will then give you the balance once they deduct their service fees and loan amount. 

You can get invoice factoring services from independent service providers or from banks. Whichever route you choose, make sure you read the fine print so you know what you are getting yourself into. 

  1. Micro-loans from non-profit lenders

If your startup requires capital injection in small amounts, micro-loans might be the thing for you. Despite the readiness that non-profit lenders have in giving a helping hand, it’s not always a one-size-fits-all deal. You have to research more on the criteria used by the lenders in search of borrowers like you. Tailor your startup business to qualify for a particular lender. There are terms, conditions and qualifications to meet so ensure you read the fine print wisely.

  1. Home equity loan

Your startup might require a lump sum of money to get it going. If you own a home, why not consider looking at a home equity loan? Using your home as the needed collateral might give you a chance to work on your startup hassle-free. This line of credit or home equity loan will always grant you more credit than what personal loans or micro-loans can give you. But there is a catch here as you have to have some form of ownership on your property.

The bottom line, your business requires some money to get it going. Its best to have your borrowing facts right before embarking on your startup journey. 

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.