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15 Ways to Access Startup Loans for a Small Business

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Do you need to find a way to finance your new business?

There are quite a few "secret" ways a small business start up can access loans, and here we'll show you 15 of them.

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15 Ways to Access Startup Loans for a Small Business

  1. 1. Photo by Amyn Kassam - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/27482923@N03 Created with Haiku Deck
  2. 2. Presented By: Rob Misheloff Smarter Finance USA www.SmarterFinanceUSA.com
  3. 3. Photo by Werner Kunz - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/35375520@N07 Created with Haiku Deck
  4. 4. 7(a) Loans Can Be Used For Real Estate Equipment Working Capital
  5. 5. Loan Terms Up to $5 million, Average Loan Size is $337,750 10% Down Payment, Personal Guarantee and Collateral are Required Up to 7 years for Working Capital, 10 Years for Equipment, 25 For Real Estate
  6. 6. Pros and Cons of SBA 7(A) • Low Interest Rates:6- 7% as of 2014 •Long Payback Periods • Less than 15% approval rate •This Loan Can Take Several Months to get
  7. 7. Photo by Pete Zarria - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/98019953@N00 Created with Haiku Deck
  8. 8. SBA 504 Loans Can Be Used For Real Estate Equipment
  9. 9. SBA 504 Loan Terms Up to $5 million, but your business must create 1 job for every $65k borrowed 10% Down Payment, Personal Guarantee are Required, but the assets acquired serve as collateral Loan terms of 10 or 20 Years
  10. 10. Pros and Cons of SBA 504 Loans • Low Interest Rates: ~5% as of 2014 •Long Payback Periods • Very difficult to qualify for •This Loan Can Take Several Months to get
  11. 11. Photo by alphatrek - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/66825505@N00 Created with Haiku Deck
  12. 12. SBA MicroLoans Can Be Used For Real Estate Equipment Working Capital
  13. 13. SBA Microloan Terms Up to $50,000 with average loan amounts around $13,000 Personal Guarantee and collateral are generally needed, but vary (loans are placed by intermediaries) Loan terms of up to 6 Years
  14. 14. Pros and Cons of SBA Microloans • Reasonable interest rates from 8-13% •Payback Periods Up to 6 Years • You have to take classes first and submit a business plan •This Loan Can Take Several Months to get
  15. 15. Photo by AZso - Creative Commons Attribution-NonCommercial License https://www.flickr.com/photos/15887936@N00 Created with Haiku Deck
  16. 16. Shelf Corporations A sometimes used trick for startup owners with great credit is to buy an aged corporation that isn’t being used for any actual business and use that corporation’s age to get a loan.
  17. 17. How Can a Shelf Corporation Get You Money? You buy the “zombie” corporation (typically for about $5,000) Along with the aged corporation and your good credit (720+), apply for a “stated income loan” If successful, you can receive a line of credit from $50,000-150,000
  18. 18. Pros and Cons of Shelf Corporations • Reasonable interest rates • It’s not exactly ethical to use another corporation to mask your business’ age •You may get turned down and be out $5,000 • Many of the providers are con artists
  19. 19. Photo by enriqueburgosgarcia - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/36001761@N02 Created with Haiku Deck
  20. 20. Peer 2 Peer Lending Startups Can Access P2P Funds If They Have: 700+ Credit Score 2nd Source of Income (a job or a working spouse, or another business) $150,000 Liquid Net Worth ($$, investment or retirement accounts)
  21. 21. Startup P2P Loan Terms $50,000 to $500,000 Rates of 9-21% “simple Interest” (which really means up to 30% if compared to bank loans….) Loan terms of 2-5 years
  22. 22. Pros and Cons of P2P For Startups • Longish Payback Terms • Higher Rates •Not Easy to Qualify
  23. 23. Photo by RyanP77 - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/20723636@N03 Created with Haiku Deck
  24. 24. What Is A Sale-Leaseback? Take a Loan Against Vehicles or Equipment You Own Kind of Like a Home Equity Loan On Your House
  25. 25. How Do Leasebacks Work? Payback over 2-5 Years Structured as a “lease” so you can write off the entire payments. Good credit not required – but rates depend on credit. Customers with reasonable credit often find the tax savings negate most financing charges
  26. 26. Pros and Cons of Sale Leasebacks • Easy Qualifying (if you own equipment) •Big Tax Breaks •Long Payback Terms • Higher Rates (but often compensated for with tax savings)
  27. 27. Photo by Minneapolis Institute of Arts - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/25294025@N06 Created with Haiku Deck
  28. 28. Problems With Borrowing From Friends and Family? It’s easy to screw up reporting and/or track on-time payments if you “do it Yourself You may not know how to amortize a loan properly This could cost you relationships!
  29. 29. Solutions Online Tools To Help Track Friends and Family Loans •Loankin •ZimpleMoney •Trust Leaf All are very inexpensive with setup fees from $0 to $200 and plans ranging from “Free” to $35/Month
  30. 30. Photo by Pure Metal Cards - Creative Commons Attribution-NonCommercial License https://www.flickr.com/photos/65778504@N03 Created with Haiku Deck
  31. 31. Why Not Just Fund Your Business With Plastic? If You Have Large Amounts of Credit Available, this will be Cheaper than a lot of Other Options. Have Multiple Cards? Do the Credit Card Shuffle, and Get Zero Percent Financing (You’ll pay 4% each time)
  32. 32. - But - Don’t max out your cards – this will tank your credit score and impede future borrowing You may be warned against this – people that don’t understand finance might think it’s risky (Let’s be serious, anyone lending money to a startup is going to ask for a personal guarantee, so how would using your credit cards be more risky than anything else?)
  33. 33. Photo by Doha Sam - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/46575101@N00 Created with Haiku Deck
  34. 34. Pros and Cons of Equipment Leasing • Easier to Get Than Most Startup Financing •Big Tax Breaks •Long Payback Terms • Higher Rates (but often compensated for with tax savings)
  35. 35. Photo by kenteegardin - Creative Commons Attribution-ShareAlike License https://www.flickr.com/photos/26373139@N08 Created with Haiku Deck
  36. 36. Should You Borrow From Your 401(K)? Your Financial Advisor Would Advise Against it, as the 401(k) is your Safety Net The One Good Thing is You are Paying Interest to Yourself If You (or Your Spouse) Leaves the Employer at Which the Funds are Held, the Loan will be Due in 60 Days.
  37. 37. Photo by danielmoyle - Creative Commons Attribution License https://www.flickr.com/photos/56844027@N05 Created with Haiku Deck
  38. 38. You Can Borrow From Life Insurance? You can Typically Borrow up to 90 Percent of the Cash Value of an Insurance Policy at 6-9% NEVER do this Without Talking to Your Accountant First. Taxation Rules on this Can be Tricky.
  39. 39. Photo by camies - Creative Commons Attribution-NonCommercial License https://www.flickr.com/photos/16156673@N00 Created with Haiku Deck
  40. 40. Hard Money? What Is That? If You own Real Estate (other than Your Home) You can Borrow Against the Value of the Property Hard Money is Often Referred to as a Type of “Bridge Financing” as it is Best as a Shorter-Term Funding Option
  41. 41. Hard Money Loan Terms Often Available for Months As Opposed to Years, You Can Typically Leverage Up to 75% of the Equity in a Property Rates can be High, With Large Origination Fees and High Interest Rates Since the Property Serves as Collateral, this is One of the Only Business Loans that Needs no Personal Guarantee
  42. 42. Photo by Amir Kuckovic - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/12389767@N04 Created with Haiku Deck
  43. 43. Invoice Factoring If You are Giving Customers Terms, you Can Really Drain Business Cash Flow Fast. You Can Sell Off Your Invoices to a “Factoring Company”, Receiving Cash Today Factoring Can Be A Good Choice for New Businesses – Qualifying is Based on Your Customers’ Business Credit, not Yours
  44. 44. Pros and Cons of Factoring • Easy Qualifying •Fast Cash • Rates Can Be Pretty High •You Can End Up Paying More than Planned With Slow- Paying Customers
  45. 45. Photo by tsuna72 - Creative Commons Attribution License https://www.flickr.com/photos/60132504@N08 Created with Haiku Deck
  46. 46. Purchase Order Financing If You Have Orders to Fulfill, but Not the Capital To Buy Materials, You Can Finance Against Purchase Orders Very Similar To Factoring, Rates Can Be Expensive, but PO Financing Can Be A Great Option For New Businesses That Cannot Get Financing Elsewhere
  47. 47. Photo by theqspeaks - Creative Commons Attribution-NonCommercial-ShareAlike License https://www.flickr.com/photos/83261600@N00 Created with Haiku Deck
  48. 48. Crowdfunding? A Relatively New Concept – Startups Have Recently Been Turning To Potential Customers and Fans To Provide Interest Free Loans in the Form of Pre-Orders Kickstarter.com has been a popular platform, with several startups finding hundreds of thousand (or even millions) of dollars in seed funding.
  49. 49. Bonus: For More In Depth Information, Including 3 Startup Funding Strategies Not Covered in This Presentation, Please Click Here

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