Startup Financing and Loans 101 For Small Businesses | Behalf

By January 6, 2017Business Financing
startup financing and loans 101

Loans, Angels, and Capitalists Oh My!

Take a moment and think back to when your startup was a mere lightbulb moment. Congratulations! You have come a long way if you’re looking for ways to finance your startup. Startups are taking industries by storm. They are outpacing large corporations in innovation, satisfying customers’ demand for convenience with better, faster, and simpler technology and processes. By definition startups are trailblazers; finding sources of startup financing early will keep their growth engines ablaze and ensure they don’t get extinguished.

Fortunately, there are startups that have built new financing technology to satisfy other startups’ business financing needs. Traditional banks move too slow and view startups as risky investments. As a result, the rejection rates for startup loans have always been high. In fact, some banks do not offer business financing to startups period. This market gap naturally gave birth to a swath of alternative lending startups whose payment tools are designed specifically for the growing population of startups and small business that have been written off by banks. Additionally, startup investing has become an industry onto itself, with angel investors and venture capitalists on the hunt for “the next Facebook.” This article will discuss the different types of available startup financing to help you determine the best options for your startup.

  • Startup Loan

Looking for a startup loan might prove to be a challenge. Loans are heavily regulated and hard to secure for even established small businesses. Banks do not view startups as the ideal candidate for bank loans, because their business credit history is not very extensive. Like a young consumer or someone recently relocated to America, an early stage startup can be referred to as a “thin file” with not enough information to underwrite. You may be able to secure an SBA loan or a microloan; however, these loans are in high demand with high rejection rates. Loan applications also take a long time to complete and it can be weeks until you gain access to your loan. Your startup most likely needs financing now so that you can keep up with your rapid growth.

  • Merchant Cash Advance

A merchant cash advance is like a loan, but less regulated. As a result, merchant cash advance lenders have lower rejection rates and offer more flexible terms, making this an attractive startup financing solution. Merchant cash advances can empower your startup with fast, convenient online applications and instant access to funds. That being said, the lack of regulation on merchant cash advances makes your startup vulnerable to predatory lenders who can charge absurd rates and trap small businesses in debt. You will need to shop wisely, comparing the total cost of financing, if you choose this startup financing method.

  • Business Line of Credit

A business line of credit is somewhere between a loan and a credit card. If you are looking for flexible startup financing, a business line of credit is ideal. You are only charged for the amount that you use and the funds replenish as you make payments. Instead of loans, which are a one time draw, business lines of credit give you access to a constant source of funding to carry your startup’s operational expenses and cushion your capital reserve. Behalf, a purchasing line of credit for your business, gives you up to $50,000 purchasing power with no hidden fees. Their exceptional term flexibility gives you up to six months of extra time to fulfill payment for purchases on a fully customizable schedule. Behalf, a FinTech startup built for startups, understands that flexibility in financing is key in selecting which terms are right for you.

  • Angel Investors

Angel financing is nothing new but it has risen in popularity with a growing number of startups. An angel investor is typically a high net worth individual looking to invest in startups in exchange for equity in the company. They invest around $25k-100k of their own money in early stage startups. Angels typically work alone and do not have to answer to anyone, but they can form groups. They can also give you powerful insights into the market and become a major asset to your startup.

  • Venture Capitalists

Venture capitalists invest in startups a little later in the process than angels with a Series A investment. They usually answer to investment committees, instead of acting as individuals. Venture capitalists make larger investments than angels, averaging close to $7 million, to help startups grow and increase market share. It takes a little more convincing and a well-developed plan of attack to secure a venture capitalist. Like angel investors, a venture capitalist’s investment is also in exchange for equity and lasts a few years before the venture capitalist looks to exit.

Why You Should Choose Behalf As A Startup Financing Solution

Angel investors and venture capitalists are strong forms of startup financing, but most entrepreneurs are not willing to trade-off the equity and decision making power required to take on these types of startup investment. There are plenty of other ways to finance your startup without paying this irrevocable price. If you are looking for a flexible way to cushion your capital reserves and shore up investment capacity for startup growth, choose Behalf’s startup financing solution. You can use a Behalf line of credit to fund production, inventory or any large business purchases required to grow your startup. With no hidden fees, you can customize your startup financing terms giving yourself up to six months of extra time to fulfill payment on each business purchase. Like only a fellow startup could, Behalf believes that startups need to be empowered with credit to help them grow.

Get a decision when you apply online for startup financing and start using your purchasing line of credit to buy what you need to grow.

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