Three Loan Financing Options to Consider for Your Startup

For every startup venture that finds a marquee investor right out of the gate or is spearheaded with an entrepreneur who has plenty of cash to burn, there are tens, hundreds, or perhaps even thousands of others who spend months or years getting by on shoestring budgets and limited finances.

The first thing that is important to remember for startups belonging to the latter category is that the size of your budget is not a make-or-break factor in determining whether or not your company has a shot at success. Having plenty of money on hand obviously makes things easier for startups, but entrepreneurial ventures can succeed even if they take a while to start turning a profit or grabbing investors.

Getting Help from a Lender

The second thing to remember, though, is that even when you aren’t bringing in a ton of money, you will still have expenses. From rent to marketing costs, from inventory acquisition to product development, your business probably has a significant list of monthly expenses. If you don’t have the capital to pay the expenses out of your own pocket and haven’t scored that aforementioned “marquee investor” just yet, you’ll need to consider another option: loan financing.

Getting help from a money lender can be scary, not only because you are spending money that isn’t yours, but also because you might be required to put up your business assets (and possibly even your personal assets) as collateral to secure the loan. Furthermore, not all banks or traditional money lenders will be willing to give you a loan, simply because your business is too new and your risk profile is too high.

However, there are funding companies out there that specialize in providing working capital to small businesses like yours—even unproven ones. Specifically, look for a money lender that offers one of these three loan financing options for businesses.

1. Working Capital Loans: A working capital loan is the form of small business financing that is most similar to a traditional bank loan. You apply for a loan and if you are approved, the funds are distributed directly into your account. Unlike traditional bank loans, though, most working capital loans are available to small businesses even if they haven’t been around for two years and don’t have huge annual revenues. Working capital loans are also faster than bank loans, don’t require collateral, and can be paid back in small daily payments instead of huge monthly ones.
2. Merchant Cash Advance: A merchant cash advance is similar to a working capital loan, but is meant specifically for merchant vendors who see most of their earnings from credit and debit card sales. Like with a working capital loan, you pay back your loan amount with small daily payments. What’s unique about a merchant cash advance is that the payments are automated based on your daily receipts. If you have a great day with lots of credit and debit card sales, you will automatically pay back a larger amount of your loan. A smaller day of sales triggers a smaller payment. Either way, you keep cash on hand while chipping away at your debt.

3. Business Line of Credit: If you have a large expense that you need to cover right away, that’s when you would go for a working capital loan. If you just want an account that you can use to pay off smaller or more intermittent expenses, a business line of credit might be preferable. Essentially, a business line of credit works exactly like a personal line of credit. Your business is approved for a certain loan limit and you can spend up to that amount in a month. You also pay off the loan just like you would pay off a credit card.

Talk with your business partners or with a small business money lender to determine which of these three options is best for you. Business lines of credit offer flexibility and control, working capital loans are ideal for instant cash flow, and merchant chase advances are hugely convenient for businesses with daily credit card sales. With the right lender, any of these options could be perfect to give your startup some extra financial freedom.