You have a great solution and a unique opportunity to launch what promises to be a thriving, profitable startup. However, there’s just one problem between you and a spot on the Fortune 500, and it’s about a big of a problem in the business world as there is: you don’t have enough working capital to get (and stay) off the ground.
If you were a large organization, you could float an IPO, sell and lease-back assets, issue stock, or just give your friendly bank manager a call, who would be probably be more than pleased to extend a line of credit or facilitate a long-term loan. After all, banks love big businesses as much as big businesses love banks.
Unfortunately, there’s a lot less love — make that none — for startups, since banks typically see them as too risky and, frankly, not profitable enough. After all, it costs banks about the same amount of money to underwrite a $100,000 loan as it does a $2 million dollar loan, but on the latter they make much more profit. As the saying goes: “do the math” and it’s clear why banks say no to startups that need funding far more often than they say yes. That’s the bad news.
The good news is that you don’t have to let your business dreams fade away, or worse, watch someone else capitalize on your idea. Instead, you can explore any or all of the following sources to get funding for your startup:
- SBA Loans
The SBA (Small Business Administration) has several loan programs geared towards startups. However, competition for funds is ferocious, and the annual funding pool is usually dry by about September. What’s more, SBA loans — which are facilitated by banks — take months to snake their way through the application and approval process, and the administrative burden is severe (expect to spend anywhere from 40-80 hours putting your application together). As such, if you don’t have time on your side then it’s unlikely that applying for an SBA loan will be the funding solution you need; at least, not right now.
- Alternative Financing
Alternative financing is the catch-all term given to various funding products offered in the alternative lending marketplace. Both short and long-term options are available, and many firms don’t require collateral or a lengthy credit history — which is good news for startups that typically have neither. Furthermore, you can apply for an unsecured business line of credit to have cash-on-hand for taking care of unanticipated expenses or profitable opportunities.
If you can generate enough buzz for your can’t-miss idea, then you might find plenty of gold in the crowdfunding mines. Be careful, though: for every campaign that reaches its target, there are hundreds (or more like thousands) that don’t. Go ahead and set something up if you wish, but don’t count on striking it rich.
The Bottom Line
The saying “it takes money to make money” is as true today as it ever was. If your startup needs a cash infusion to get off the ground and achieve its potential, then any or all of the above could be the answer to your funding prayers. Do your research, ask questions, and educate yourself to make a smart, safe decision that puts you on-track for long-term success!