Start-up Funding – Is It Possible?
Start-up Funding is the most challenging aspect to being an Entrepreneur. Hoping to start a new business? An unsecured business loan might be just the thing you require to get your business off the ground.
Before we get too far into the topic, it would be good to set some ground rules for the understanding of what a “Start-up” actually is. A general description of a start-up is a new business entity that is less than 5 years old. Some would say that after 3 years in business, a company will cease being a start-up. But in terms of Start-up Funding, a company that is 3 years old may not have all the documentation requirements that many Commercial Funding Providers will require. For the purposes of this article, we are going to stick with the 5 year timeline.
Start-up Funding – Pre-Start-up Small Business Loans:
In general, the credit requirements are significantly higher than programs offered for operating businesses. For an unsecured business loan you will need to have a tri-bureau credit score of around 700. One good the good thing is that with this program, is you will not need to disclose any income. If your score is high enough, it is a great program.
Most small business loan programs will require you to show an established income pattern over the last several months, if not years. When looking for Start-up Funding, that is not an option.
When looking for Funding for your new business, there are other, less conventional Business Finance options as well, depending on the type of business you are looking to open.
Start-up Funding – Pre-Start-up Equipment Leasing:
All companies need equipment. Startups especially. The entrepreneur must demonstrate income that will come from other than the proposed business operations will be available. The servicing of the new equipment to be procured may be serviced with this income. In this case, it may be possible to get funding for the new equipment.
To be clear. It must be demonstrated that the income being used in the qualification for the proposed equipment purchase will continue once the business has started. If there is any doubt that the income will not be available once the business starts, then this income stream cannot be used.
For example, if the business owner has other income from outside investments. If the revenue from these investments will continue to be in place whether the new business is started or not, then this income may be used to qualify for the equipment leasing.
Start-up Funding – Pre-Start-up Accounts Receivable Factoring:
Another one of these Programs is known as Accounts Receivable Factoring. What this Program does is advance funds to your company within 24 hours of you invoicing your B2B customers. The terms must be under 90 days. In brief, this means that you would set up your Business customers with a credit account. Your company would sell its services to the Business Customers and they would not need to pay the invoice until due. You would get about 85% of the invoice face value amount provided to you by the finance company within a day of you billing your customer. These funds may be used to pay your day-to-day operating costs. This advance means you would not need to wait for a month or more until the customer pays you.
To be clear, this is for Business-to-Business sales on credit terms of 90 days or less. This is not for Consumer Sales or terms that exceed 90 days.
Start-up Funding – More than 3 month in Operation (Merchant Cash Advances):
If a company accepts credit-cards as a form of payment, a pattern will be formed to show what the expected sales of the company will be in the short term. A Merchant Cash Advance may be done using these numbers. The loan will be based on the net deposits (gross deposits less chargebacks). The payments for this type of loan will be taken directly from the deposits to be received from the Merchant Account.
Start-up Funding – More than 6 months in Operation (Small Business Loans):
Once it can be demonstrated that the company has been in operation for more than six months, other options suddenly become available. Small Business Loans may now have a basis to estimate the business’s income. It is now possible to take the bank statements showing the deposits of the company and estimate the expected future sales.
More and more supporting documentation will become available as time passes. This may be used by Commercial Lenders to show income for the application. The Debt – Service Ratio may be determined when more than 2 years of supporting documents become available. Maintaining a strong credit profile is also critical. These items are used for the qualification of the Business Loan. The more good information that is available, the more programs will be available to the company.
The Commercial Lender will be looking historical information. Two years of audited financial statement, two years of tax returns as well as interim financial statements. All this must be provided by company and it takes time to create these supporting documents. It can be said the company is outgrowing its “Start-up” status and is becoming a mature business when it is able to provide this information.
Until this happens, the Entrepreneur has options available to them at IMMFinancial.com. Want a brochure to review which will describe all the available programs? Click the download button below.
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