How to Get Short-Term Business Loans for Startups
Startups are their own category when it comes to obtaining financing. For many lenders, startups aren’t worth the risk when it comes to extending loans. Even with a great management team or phenomenal business idea, when it comes down to dollars and cents, startups have a much greater chance of defaulting on a loan than companies with stellar balance sheets that have been in business for many years. Since lenders are in the business of minimizing risk, it can be hard for startups to obtain financing, even for short-term business loans. In many cases, your best bet as a startup is to look for alternative sources of capital; one option is Seek Business Capital.
How Does It Work?
What Are the Rates?
Am I Eligible?
How Much Can I Get?
What Documents Do I Need?
What Are the Terms?
Seek Capital can provide both consulting services and funding procurement to startup businesses across America. Funding through sources like Seek Capital can often be achieved rapidly, with applications taking a matter of minutes and responses coming as quickly as a few hours. For short-term financing needs, a Seek Capital consultant can work with you to determine the best financing options for your business.
If you’re a startup, you should generally be prepared to pay a higher rate for your short-term business loan. This isn’t a personal judgment, it’s just a risk-reward calculation. As your company doesn’t have a long operating history, lenders have a harder time making an accurate assessment about your ability to repay a loan.
One of the advantages of working with a specialized lender or finance consulting company is that they can often work with newer companies to arrive at a flexible payment structure that compensates the lender for the risk taken but isn’t so onerous that the company has no chance of paying it off. Seek Capital, for example, can offer a 0% introductory APR for many borrowers who qualify, with a variable rate thereafter.
Eligibility for any loan can be tricky for a startup company. Without the financial pillars that most lenders want to see — a long operating history and a consistent cash flow — startups can typically expect an uphill battle when it comes to funding.
However, this doesn’t mean that startups can never get loans. On the contrary, every successful business that exists today was at one time a startup that undoubtedly got some type of funding along the way. Your job as the owner of a startup is to collect enough documentation to show that your company can handle its financial obligations.
An important step in that process is to have a thorough, well thought-out business plan. Though not always required by all lenders, having a business plan ready shows that you’re serious and prepared. Your business plan is a financial road map showing how your business is going to reach its goals along the way. This is critical not just for your lenders to see, but also for you to follow as a growing company. In some cases, it can be the most important step in the process of obtaining a short-term business loan as a startup. At the end of the day, bankers respond to numbers, and if you have a financial plan in black and white, it can help convince others of the future success of your business.
After you write your business plan, your next best step is to get your personal finances in order. Since your business doesn’t have a financial history, lenders will run a credit check to see if you’ve got the ability to pay back both the principal amount and the interest on your loan. The longer you’ve made on-time payments — and the lower your outstanding debt — the better your score is likely to be. If you’re coming up short in either of these areas, do your best to clean things up before you apply for a loan.
Companies like Seek Capital can often be more flexible about the financial situation of a startup company, which can improve your chances of obtaining a loan. Regardless of the company you work with, however, you’re only likely to qualify for a loan with good terms if you’ve got your credit in order.
If you’re just looking for a general loan for your startup business, you may be able to get a much larger loan amount than with an equipment-specific loan for example. At Seek Capital, borrowers can request financing of up to $500,000, but the amount you’re approved for depends on if you’re a qualified borrower. However, it’s typically easier to get approved for smaller funding amounts, so requesting an amount that will cover just the expenses to cover you need may be a safer bet. Ultimately, the financially prudent move when borrowing money from anyone is to only request an amount that you can realistically pay back. Of course, a loan is a loan, and the amount you get approved for will always depend on factors such as your income and personal credit history.
To get a short-term business loan for a startup, you’ll need to produce some type of evidence of your creditworthiness. Since new companies don’t have detailed business financials, you’ll have to rely on the business plan for your new company and your own personal credit profile. Documents you should be expected to provide include:
- Information about how you intend to use your short-term business loan
- Your personal credit report and your Social Security number
- Your startup business plan, including anticipated cash flow and future profit potential
As a startup company without a business track record, your borrowing options will be limited. Beyond large international banks, you’ll need to look for alternative lending sources such as Seek Capital. These types of companies focus on cultivating relationships with startup businesses, so you’ll likely have an easier time finding a short-term business loan through them.
Short-term business loans are a good option for startup companies because lenders often won’t finance startups for long-term loans. A long-term loan for any business involves more risk for a lender, but this is particularly true in the case of a startup. Although you can always negotiate terms with your lender, you should probably anticipate that your short-term business loan may only last a matter of months, or a few years at the most. Once you’ve demonstrated the ability to pay back a short-term loan, you may have a better chance of extending your loan terms going forward.