Starting a new business is an excellent undertaking, especially if there’s a solid market for your business concept. One thing you may realize as you start is the number of unexpected costs that pop up. Put simply, there are a lot of things to purchase if you want to hit the ground running with your new brand: equipment, technology, inventory, payment systems, etc. Can startups qualify for lines of credit to help with these expenses?
The Challenges for Startups
Getting any kind of financing isn’t easy for a new business owner. The reason for this is relatively simple: your company doesn’t have a credit rating. You haven’t had the opportunity to build up a strong credit score by faithfully paying off loans or managing funds wisely.
Some business owners think they can convince lenders to support them by showing a great business plan, but this type of presentation is more common if you’re trying to get backing from a venture capital firm. Banks don’t work that way.
The good news is that there are other ways to convince lenders to support you. You need to know where to look.
Options for Startup Lines of Credit
Some lenders work extensively with small business owners and startups. Because they have so much experience, they’re in a better position to make decisions by looking outside of the box. These lenders don’t always adhere to rigid credit score requirements when providing funds. That doesn’t mean you can sail through the qualification process automatically, though.
Some lenders are willing to provide financing if one of the business owners has a qualifying credit score. For example, if you partner with an established, experienced entrepreneur, lenders may be more flexible based on the financial skills of your partner.
Another option is to provide a personal guarantee. A personal guarantee means you agree to leverage your assets to pay back the line of credit if necessary. It’s like a home equity line of credit for house flippers. This option carries additional risk, and it’s not for everyone. That said, it can be just as risky to use your credit card for business purchases, so you may want to weigh your options.
Whatever type of financing you select, make a smart plan for how to use the funds. Prioritize items that deliver a good return on investment and help you generate revenue. That way, lines of credit are much easier to manage.