5 Business Loans You Can Get Without Being Profitable

5 Business Loans You Can Get Without Being Profitable

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With the Bureau of Labor Statistics reporting over 415,226 startup firms less than 1 year old in 2017, it’s apparent that this category of business will need funding like never before. However, business loans are tricky. On hand, they tend to offer a larger line of credit to companies than personal loans or lines of credit. On the other hand, qualifying can be difficult and often requires you to provide at least two years of documentation that you are profitable.

For the brand new business that hasn’t managed to turn a profit (yet), what is left? How can you get a cash infusion into your business in time to expand, add employees, support a product launch, or refinance existing debt? The following loans are a bit non-traditional, but just might be exactly what you are looking for in your quest for funding during your startup years.

1. SBA Microloans

The Small Business Administration has been matching companies with willing lenders for years, and their recent addition of microloans to their funding matches is good news for companies who don’t qualify for the larger loans with more rigid requirements. While the name “microloans” does accurately imply that that loan amounts are much smaller (usually $2k – $50K), they also come with fewer hurdles to jump over. Since the loans are more modest, they assume more risk, and are perfect for companies with no sufficient track record for the bigger loans. In the past, the SBA has provided a list of banks and non-profits that offer microloans. Today, they ask that you go through their screening process to get you matched before you apply.

(Note: The SBA has announced efforts to put more of their funding dollars into startups and businesses who are struggling to get off the ground. Micro-loans are being given to creditworthy individuals, with an emphasis on providing equal funding opportunities to applicants of “equal every race, gender, and region. They also have special programs to alleviate some of the application costs for veterans, and they have developed unique resources for women, minorities, and underserved groups. Renewed commitment has resulted in 26% growth in the microloan portion of the SBA funding.”

2. Credit Cards

If you’ve been running your business for over two years, you may have an adequate business credit score (check yours for free with Nav) to get qualified for a generous credit line from a business credit card. Note that the rates for these are high – especially if you need cash. (Cash advances have a significantly higher APR than purchases, which is why you should consider credit cards only if you can get a good intro rate on purchases and then expand your business without accessing liquid funds.) For the business with short-term needs, even a personal credit card can get you through a tight time, although it’s always best to try to qualify with your business credit profile. By getting even a low-limit card in your business’ name, you are taking important steps to building the healthy credit profile that will get you access to those big business loans you may eventually need.

3. P2P Lending

There are numerous peer-to-peer lending sites that cater to businesses, and you will usually use your business plan, profile, and some documentation to qualify. If you sincerely have no business records to speak of (or they are lackluster, at best), try getting a P2P loan from a site that caters to individuals. You won’t get as much money as a person as you would as a business, but your approval odds are better – especially if you’ve been responsible with your credit and have a good score. P2P lending rules vary by state, and some states offer fewer loans types and have many more distinctions between business and personal loans. Do a little research to see which of the two types of lending are best for your situation. For a small cash loan, you may find that you’re more drawn to rates, monthly payment size, or even loan limits than whether it’s a true “business” loan.

4. Asking Mom and Dad

While a bit awkward, this method is popular. In fact, the SBA lists it as one of three choices for startups with no access to other funding. They recommend you follow some guidelines for making the ask, however. Contract terms should be discussed up front, and all transactions, payments, and communications should be treated as professional as they would when dealing with an actual bank.

5. Crowdfunding

This is a variation on the friends and family lending choice, and many businesses have credited this type of loan for helping their company get to the next level. In fact, with the rising acceptance of sites like Kickstarter, which act as a crowdfunding platform to get buy-in from hundreds or even thousands of potential investors, it’s more likely to get backing from those you know well than ever before. With crowdfunding platforms legitimizing the process of asking for funds, it no longer feels sleazy to send Aunt Edna a message about your new startup. You’ll also get good buzz for future projects well before they launch.

Since most crowdfunding options let you provide product, services, or gratitude in lieu of repaying the money, it’s more financially sound, too. There is no looming repayment plan, accruing interest, or awkward family dinners where everyone wonders when they’ll get their money back. Crowdfunding is a very real way to let your loved ones invest in your business, provided you can market yourself well and keep investors apprised of your business plan.

Bigger Budget Options in the Future

Even if you’ve struggled to get funding in the past, the future is looking good for brand-new businesses in the U.S. The SBA reveals hopeful numbers in a report that shows just 5% of businesses have closed their doors due to lack of credit in 2015 (vs. 14% of businesses in 2007.) A robust economy, more innovative funding options, and the acceptance of startups into the fold will likely continue the trend for years to come.

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