Startups don’t just become worth multi-billion dollar valuations overnight. As you get off the ground, you will encounter challenges that test your mettle as an entrepreneur. Almost 90% of start-ups fail within their first year. The reason most cited for the failure was a lack of funding and a crippled cash flow.
There are times in the start-up phase of a business where the growth experienced by the company begins to strain financial resources. Firms may encounter problems managing free cash flow to acquire assets, run payrolls and settle creditors.
Small business loans are readily available to startups that are in need of immediate financial solutions. Here are four reasons why start-ups could benefit from a small business loan.
#1 Purchase or Upgrade Your Equipment
Do your systems need emergency maintenance? Maybe you need to buy some new equipment? Purchasing equipment can cost a lot of money and paying for it with cash is simply not feasible. Micro lenders are always interested in loaning to startups that require income producing assets. A small business loan can help you get the equipment you need to help your business expand.
#2 Leverage for Institutional Loans
Startups enter the credit markets with no credit record. Finding financing from institutional firms is incredibly difficult as banks consider start-ups a high-risk loan client. Therefore, they charge high rates and ask for collateral or sureties to insure the loan. If the startup fails and the loan defaults, you will be held personally liable for the outstanding loan amounts to the bank.
Micro lenders are much more lenient in their loan qualifications. It’s easy for startups with no credit history and no credit score to get a loan at a reasonable rate. As you pay off your loan, your credit score will improve, and you will be able to access institutional funding in the future.
#3 Solve Creditor Payments
Cash flow is the number one problem that startups face when they are growing. The challenge comes in managing the income and expenses of the firm as it is growing. Suppliers do not like to issue credit accounts to startups that might fail and stick them with the bill. Therefore you may need to settle your accounts before you can buy more supplies. If your startup needs capital to purchase more bandwidth because of growth in the network user base, use a small business loan to bridge the financial gap while you wait for outstanding clients payments that may be late.
#4 Take advantage of New Growth Opportunities
Startups are offered new opportunities for growth all the time. The chance to attend a major conference, or buy a server for cash, creates a need for cash to be available on demand. A small business loan will give you immediate access to cash that you can use to take advantage of these opportunities to earn more income and acquire valuable assets.
Make sure you choose a reputable financial services provider as your loan agent. Visit smallbusinessloans.co and speak to the professional consultants about a customized small business loan to suit the funding needs of your startup. Never take on debt that you cannot afford to repay, that could end up landing you in financial hot water. Speak to your accountant about the loan and work out a monthly payment amount that is affordable.