Startup Business Loans & Startup Lines of Credit

Small business start-up loans can be a time consuming process for a new business owner. If your startup business capital needs, look like a sizable amount, let’s say, $1 million or more, you should be aware of the lender’s requirements if you seek an approval of for a loan of this magnitude. In other words, there is very little wiggle room when working with the lender’s guidelines concerning million dollar plus financing scenarios. Startup business loans in the Million dollar loan programs range, are a significant financial funding transaction that must meet very specific lending criteria.

How To Get Million Dollar Startup Business Loans For A Small Business Startup

Not every startup business financing program offers loan amounts that reach $1 million or more, so it is prudent to first determine which lenders do offer financing at this premium level. This preliminary exercise omits lenders who might want to help but have no product or the ability to assist. Many small business loan seekers begin their financing search by researching the upper limits of the Small Business Administration’s (SBA) general business loan programs.

Million dollar financing seekers can look to the Small Business Administration’s program entitled “7(a)” whose financing limits max out at $5 million. One can look into the CDC/504 SBA program, (designed to create financing resources) for significant fixed-asset purchases. These includes financing for real estate ventures or for large equipment purchases.

The SBA’s Military Reservist Economic Injury Disaster Loan program is able to fund upwards of $2 million dollars If your small business is impacted by an influential employee called up to military duty. if this ‘call to duty’ prevents the small business’ ability to meet general operating expenses, the small business may then be eligible for the SBA’s Military Reservist Economic Injury Disaster Loan program. When deciding how to get a million dollar business loan, bear in mind that the Small Business Administration is not responsible for funding the business loan.

The actual funding is the responsibility of the lending institutions, as it is the lender who gets a guarantee from the Small Business Administration to insure the lender is repaid a piece of the loan should the borrower default.

Business Credit Criteria

When applying for a million dollar business loan, underwriters evaluate the business based upon a laundry list of pre-set business credit criteria. Creditors assess the financial health of the business from a number of different perspectives. Large loan lenders require that the small business’ documentation supports the objective that the business can operate safely (from a financial perspective) with the addition of a substantial amount of new debt. Another aspect to consider is the working capital – defined as the current assets minus the current liabilities. The reality is, lenders want to see a business with sufficient working capital, even if the small business generates enough income to pay back a million dollar loan.

The Purpose Using Startup Business Loans

Qualifying for a a million-dollar loan, typically requires that the borrower use the loan to fund a specific purpose — one that needs to be approved by the lender. For example, the SBA’s CDC/504 loan limits vary based upon the funds purpose. Contact us at LenCred so we can provide the guidance and the resources you need as you continue your search for the best million dollar loan you qualify for.

Additional Criteria

Businesses must meet specific financial eligibility requirements if they are to obtain million dollar – plus financing. Using the SBA’s CDC/504 loan as an example, the CDC/504 requires that the borrower’s net worth not exceed $15 million. Additionally, the small business’ average net income must not exceed $5 million after taxes if they are to be eligible for the CDC/504 small business loan. Small business’s that are speculative in nature, or a real estate rental business do not qualify for a CDC/504 loans. While other programs require the borrower(s) to:

Be doing business in the United States, or its annexes.
Be considered ‘small’ business as determined by the Small Business Administration’s standards for the business’ specific industry. For the majority of industries, the SBA defines a “small business” based upon a three year average of business receipts or in terms of the average number of employees for the past twelve months.
Demonstrate a legitimate need for the loan requested.
Not be currently delinquent on any United State governmental obligation.

Documentation

A borrower must demonstrate the need for the business loan and the paperwork to document the small business’ financial stability, a borrower must provide a plethora of documentation. A borrower can expect to provide business and personal financial documents, complete tax returns, P/L statements and income projections to a local SBA-backed lending institution.

If your business or business plans do not meet the conventional loan standards offered by the SBA or other business lenders, one can always try to obtain million dollar business financing by thinking outside of the box.

Small business lines of credit are flexible and effective tools for small business owners and startups to get a new enterprise off the ground and make powerful inroads into their chosen markets. These financial products can be used for a wide variety of things. Businesses can use them to pay their suppliers and to cover their operating expenses. A line of credit for small business start up is also a useful way to help compensate for lapses in your cash flow. For all these reasons, business lines of credit are a popular choice among business owners of all kinds

A line of credit for small business start up will provide you the kind of flexibility regular business loans won’t. A business line of credit allows you to borrow up to a predetermined limit, like $150,000 for example and lets you pay only the interest on the money you’ve borrowed. Then, you may draw on that amount and repay the money according to a schedule that suits you as agreed upon with your lender.

You will pay charges on your outstanding balance and lower it over time by making regular payments. The process works a lot like a cash advance from your credit card, with some added details. You will be able to borrow on an as needed basis, not in excess of the predetermined limit and pay the money back with interest.

If you’re looking for a powerful way to manage cash flow, buy inventory, or pay for surprise expenses; a business line of credit may be just the thing your small business startup needs to get off the ground.

What a Line of Credit for Small Business Start Ups is Not

It is important to keep in mind that a line of credit is not the best way to pay for significant capital expenditures like machinery or a new facility. For these more substantial capital needs, leases and business loans are usually better- and should not be confused with a business line of credit.

Your line of credit is meant to serve as a backup fund for regular use and common expenses that may have a somewhat unique character such as travel costs, filling supply chain gaps, and so on. You can think of it as a kind of general purpose problem solver, not a good way to make major acquisitions.

Before you can decide on a provider and select your options you should know how much do you need to borrow, and ask yourself whether or not you’re you willing to wait for the least expensive options.

Pros and Cons of A Business Line of Credit for Small Business Start Up

Like any financial product, most business lines of credit will have some common ups and downs that go along with them. Knowing these ahead of time will help you to match your needs to a specific provider with terms that best meet your situation.

Pros

You don’t have to have perfect credit to qualify. A business line of credit is often looked on as a good way to build up a good credit rating; which is an important asset to have if you’re going to be in business for the long term.

Because you only have to pay interest on the funds you withdraw, you will have a great deal of control over the amount of debt you will generate. So, only using your line of credit for emergencies is a great way to manage the debt you accrue.

Business lines of credit are flexible and convenient for a wide variety of uses- many of which can be peculiar, situational, and difficult to predict- which makes them great day-to-day problem solvers.

Cons

You will probably be required to update your financial statements with your lender frequently. Your lender will want to know that as time goes on, you are still able you handle your payments. This can seem inconvenient, but can also serve as a good way to encourage you to keep consistently up to date records.

Your lender can close your line of credit at any time. That may sound harsh, but it’s a useful motivator in keeping your finances in order and to avoid abusing your credit.

Your lender may require you to provide some collateral. This can be a shock for some first-time borrowers, but it is really not unusual at all.

-While a business line of credit does help you build a better credit score, you will pay for your nonexistent of poor score if you’re starting out with imperfect credit. That is a drawback- but these financial products are still one of the best ways to get rid of bad credit ratings.

To learn more about startup capital and startup financing contact us for a meeting or prequalify by clicking here.