Starting out as a new business and walking into entrepreneurship is exciting. Who doesn’t want to work and do things on their own terms? Many have been hit with circumstances outside of their control in the corporate world, and want to take back control by being their own boss. The challenge: obtaining financing needed to get started. Not everyone can go to family and friends for start-up capital, and not everyone is in position to go to their bank for start-up funding (the SBA does offer micro-loans up to $25,000, however, you must have a solid business plan and a credit score of optimally 700). I want to share information about a few unsecured funding programs and walk through the spectrum from start-up to top notch SBA financing. The minimum credit score is 680 to get unsecured funding on the personal side and your debt to income ratio should be less than 40%, with an income of $50,000 or more. The funding is fast – within a few weeks depending on the amount you qualify for and can be utilized for any purpose with no business plan or any other questions asked. On the business side, with a minimum score of 700, one can leverage their personal credit cards to business cards if they’ve had them for two years or more with no late payments and limits of $5,000 or more. There must not be any derogatory marks on the credit report – no unpaid collections, bankruptcies, liens or judgements for a minimum of 2 years. The wonderful thing about the latter option is that the business cards do not negatively impact your personal score with usage like personal credit cards do. If you get the right cards they only report to your business credit reports unless you default. This assists in your building your business credit score which ranges from 0 to 100 and is integral in obtaining lines of credit for your business and other options as you move through the spectrum of financing. The cards are available within a few weeks as well depending on how many you qualify for.

Now let’s say you’re an existing business that’s been open less than two years or has not shown a profit for 2 consecutive years and you need working capital, so you can’t go to your bank. A merchant cash advance is based on monthly revenues and one must generate a minimum of $10,000 per month. The lenders in this space are ruthless, so be aware -they’ll give you a loan of up to 75% of the monthly revenues and there’s typically no minimum credit score required, however, one must have a business bank account. The payback term is typically very short – 4 months to a year – and very costly. The payback terms can require a daily payment or weekly payment. I strongly recommend that you only utilize this type of funding if it will be used as a “bridge” to get to where you can secure a better type of financing or to complete a special project. A great strategy is to calculate the timeline of when you can secure better terms and to keep enough in the account to cover the payments. In essence, only use the amount that exceeds your payments as the bridge to your better financing or project completion. Next, if you’ve been in business at least six months and your revenue is at least $25,000 per month then you can secure a revolving line of credit with a credit score of 500 or more. The terms are much better than the MCA, and tend to require a weekly or monthly payment with terms up to 5 years.

If you need equipment for your business, then the requirement is only to be in business for 1 year and the equipment is used as collateral -therefore, your credit score is not as important. This is a great way to secure what’s needed for your business while building business credit as well. Another way to secure short term funds for your business is invoice or accounts receivable financing. This allows you to leverage a contract that you have where your payments are guaranteed by a strong company (best is the federal government) and to secure a loan to cover your expenses such as payroll, etc. while you wait for the funds. The minimum revenue is $1M per year and at least $100,000 in 30 to 60 day invoices.

Moving forward in the spectrum if you’ve been in business for at least two years with a 660 credit score, is the business term loan. The terms go from 1 to 4 years, and you must have no derogatory marks on your credit report for the last 3 years. The term loans are much easier to qualify for than an SBA loan and require a monthly payment vs. daily or weekly payments like some of the other options. The next option is a true line of credit from an “A Paper” lender. These require a credit score of 700 or higher, time in business at least 2 years with profit demonstrated on tax returns. Revenues must be above $500,000 per year and optimally your business credit 90 or higher. These are revolving lines of credit that can be used again and again.
There are crowdfunding options available if you have a brick or mortar business that can fund usually up to $50,000. These options allow you to lean on your community for funding and support of your business. There are a few sites out there and some are better than others. A few to name are: Mainvest, Kickstarter, Crowd Supply and Fundable. Each have their own criteria and payback requirements.

Finally, The SBA offers several options, including SBA 7(a) Term loans, 504 Term loans, USDA and Industry Term loans, Asset-based lines of credit and Express term loans. Time in business is a minimum of 2 years with profitable tax returns and other business financials, each requires collateral and credit scores of 700 or higher. The benefits are the lowest interest rates of any other type of financing, and the longest terms -up to 30 years depending on the type of financing.

I hope this helps with identifying some of the different types of financing available from inception to profitability for your business. Check out our website to learn more:

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