Types of start-up loans entrepreneurs should consider

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These days, many entrepreneurs decide to start their own business. Start-ups can have a lot of potential these days, but you can’t go far without capital. In fact, 38% of startups fail because they ran out of cash or failed to raise new capital.

If you don’t have enough funds to sustain your business until it becomes profitable, you could be closing up shop sooner than you think. Luckily, there are plenty of startup funding models that can help you out.

For example, lenders like Ark Kapital can provide you with invoice finance loans so that you always get paid on time. There are also long-term solutions that will allow your startup to grow. With that in mind, here are some types of start-up loans to consider.

bank loans

The most common type of start-up loan is the bank loan. It’s as simple as it sounds. You go to the bank and apply for a loan or a line of credit for your start-up business. You may need to provide security for the loan and meet certain conditions before the loan can be approved.

However, banks tend to check all things such as your personal credit score and credit history before considering your application. If they don’t like your creditworthiness, they may deny your loan application or charge you very high interest rates. So be aware of these factors when approaching the bank for a start-up loan.

Loans from alternative lenders

Alternative lenders are financial institutions that are not banks. They look more favorably on entrepreneurs and startup owners who apply for financial assistance. In other words, they don’t mind if you have bad credit as long as you pay your dues on time.

You are also required to provide security for the loan, but you are more likely to get short-term finance loans. Sometimes that’s all you need to make sure your startup business moves forward. If you don’t like the offer a bank is giving you, you should definitely try alternative lenders.

Help for investors

If your startup has potential for growth and profitability, you can get investor assistance loans like venture capital and angel investing. These types of loans will establish your business for life. However, there is a catch. First you need to convince investors that your startup has what it takes to succeed and become highly profitable within the next three to five years.

Venture capitalists are looking for profitability and they will demand a percentage of your company’s shares once it hits the stock market. Angel investors, on the other hand, are looking for the socio-economic value of your business and will ask for a 25% return on investment for their financial assistance. Therefore, make sure you consider your options carefully before opting for investor assistance loans.

Closing words

There are many types of start-up loans that can help your business survive the start-up phase and allow you to venture further into the market. Many entrepreneurs decide to start or borrow money from friends and family. Unfortunately, these sources are often limited and you may need a loan either way.