Getting your business off the ground is no easy task. Most new businesses require a minimum of $30,000 before they begin operation. Fortunately, it is now easier than ever to access alternative financing sources to start your new venture. Today, only 30 percent of new businesses begin with a typical bank loan. Many new business owners simply do not have the credit history or the personal assets needed to qualify. Others are deciding not to apply at all, choosing to pick alternative creative financing solutions which offer a more flexible fit for their business model than conventional bank loans.
The bulk of expenses often accumulate in the very beginning. This is the phase in which you are settling into a space, hiring employees and paying startup fees. You may need funds to purchase equipment and build your base, but you do not have a solid income stream yet to provide the capital to do this with. This puts many entrepreneurs into a quandary which can be addressed with modern problem solving and creative financing.
The Drawback of Bank Loans
Brick and mortar bank locations are highly risk averse. If you would like to pursue their backing, you are going to have to prove that you are already financially solvent. If you are able to provide two to three years worth of tax returns, establish a high level of previously earned income, and you can use personal assets such as real estate property, cars or savings as collateral, you may be approved for a loan.
However, because of the expenses of operational upkeep, your interest rate may be significantly higher than fully online options which offer more creative financing. Bank loans also typically take several weeks to process and can be very paperwork heavy. If a loan is offered, it typically has a minimum amount of $50,000, which means you may be borrowing and paying interest on an amount which is much greater than what you actually need to bring your business to life.
Alternative Financing Solutions
Because of a greater reliance on automation of services and the lack of brick and mortar locations which must be maintained, online lending institutions often offer same day decisions and substantially lower interest rates. Many specialize in micro loans, which are typically offered in amounts under $35,000, with the average microloan dispersed at $13,000. Microloans also typically cater to low income and underserved groups such as women, veterans and minorities. Other creative financing solutions include utilizing services such as Airbnb and Uber to add supplemental income which can be diverted to your new business.