Let’s get straight to the point, starting a new business is hard. No matter how confident you are and how great your product or service might be, you’re going to face many challenges on your way to the top. Most entrepreneurs do. One of the biggest challenges entrepreneurs face is raising capital. It’s an even greater challenge for Black and brown people to obtain capital. Oftentimes we don’t have people in our family or network that have significant wealth. So even if they do believe in our ideas, they don’t have the cash to fund it. According to a Gallup study, most people fund their startup business with personal savings. While funding your business with your personal savings may seem like the only option, there are other ways to obtain capital (that don’t have to be a challenge).
Option 1 – An Unsecured Business Line of Credit
An unsecured business line of credit (aka a no doc business line of credit) is by far the simplest type of business capital to obtain, especially for startups. It can be virtually impossible to get money from traditional (and non-traditional) business lenders without a track record (i.e. skin in the game and revenues). However, this doesn’t matter with an unsecured business line of credit. Your business can be one day old, and you could still get approved for an unsecured business line of credit. They key here is having a good credit history.
After spending some time fixing up my credit, I was able to obtain about $75,000 in unsecured business lines of credit for my startup. The process was fast and simple. The first thing I did was work with business credit experts at LenCred to identify the best lenders to apply to based on my personal credit, location, and income.
Now some people may think they can apply for unsecured business lines of credit on their own and this is true. However, I decided to work with a business credit expert because I wanted to make sure I didn’t leave any money on the table. When applying on your own, you may not know which lenders are more likely to approve you, limiting the amount of capital you can obtain using this method. FinTech companies have created propriety software and programs to help you identify the most suitable unsecured business line of credit lenders before you apply. The result is more funding, faster. Within my first two weeks of working with this lender, I was approved for $75,000 in unsecured business line of credit.
I didn’t need collateral or assets to get approved (the funding is unsecured). I also didn’t need to show any financial documentation (like bank statements or tax returns). It was all credit based. Even if your personal credit is not the best, you can also use credit partners like business associates and/or family members to get approved.
Option 2– Microloans
In addition to raising capital to finance my own business, I’ve also worked with hundreds of startup entrepreneurs, writing their business plans and helping them apply for business loans. In my experience, few (if any of them) ever heard of a microloan before meeting me. It always amazes me at how “overlooked” this funding option can be. Microloans are the best way to fund startup businesses (besides unsecured business lines of credit). In fact, the Small Business Administration (SBA) suggests that new entrepreneurs seeking financing apply for a microloan first.
The SBA has partnered with a number of lenders in across the country to offer microloans up to $50,000 to startups. There are also many micro-lending institutions that have nothing to do with the SBA. For example, in Michigan, there’s an organization called Michigan Women Forward, a 501c3 nonprofit association that provides microloans to women business owners in Michigan. I was able to obtain a $30,000 microloan from them after meeting with the loan committee and pitching my business. It took about 30 days to get an approval and another 30 days to get the funding. It took a little longer to obtain than unsecured business lines of credit but that’s okay because it was worth the wait.
The Differences Between Unsecured Business Lines of Credit & Microloans
The major difference between unsecured business lines of credit and a microloan is that:
- You don't need to have good credit to get approved for a microloan.
- You need a business plan to apply for a microloan.
- Interest rates for a microloan are lower than an unsecured business line of credit.
You can have less than perfect credit and still get approved for a microloan. Microlenders will put more focus on your business idea (that’s why they require you to submit a business plan with your loan application). If you have a viable business idea and your business plan clearly shows how you expect to turn a profit, you have a good chance of getting approved for a microloan. Microlenders also look at your professional background. A good business plan, significant experience in your industry and a good deal of confidence in yourself will help you get approved.
Another way to increase your chances of approval is by working with an expert. Instead of applying for a microloan on my own, I worked with QT Business Solutions. QT is a technical assistance provider and expert in putting together microloan preparation packages. A microloan preparation package consists of your business plan, marketing plan, 3 years of financial projections, the microloan application and other supporting documentation that lenders like to review (i.e. tax returns, w-2, etc).
Experienced microloan experts have established long-term relationships with microlenders. Microlenders mostly get applications via referrals from technical assistance providers like QT, so they value those relationships. You’re more likely to get approved for a microloan when you work with a technical assistance provider that the microlender already knows and trusts.
If you've been pulling your hair out trying to figure out how to fund your business, you can get the results you want by exploring these two funding options and secure the bag for your business in 2019 and beyond.
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