Getting financing to help launch your startup is every would-be entrepreneur’s dream. And while finding financing for a new business isn’t easy, it is possible if you know the score. Here Meredith Wood, vice president of content at Fundera, an online marketplace for small business loans, shares her best advice for landing the startup financing you need.
Lesonsky: What’s the hardest part of finding startup financing?
Wood: The lack of options. Startups are inherently risky, and investors and lenders alike can be wary.
Rieva Lesonsky: What’s the first thing a startup should do if they need funding?
Meredith Wood: Decide which type of funding you want to pursue. You’re going to have a different set of “to-dos” based on the type of funding you pursue.
Lesonsky: Beyond the traditional bank loan, what are some other sources of startup financing business owners may not know about?
Wood: Business credit cards are often one of the easiest options to qualify for. There’s also a product out there called the “credit line builder,” where some companies will help you get a few credit cards to make a credit line and then help you pull cash from that line. There are equipment financing and consumer loan options for startups, as well.
Lesonsky: Are there certain types of startups that have an easier time getting financing?
Wood: The better your personal credit score, the better your chances of getting a startup loan. And if you’re still in the “startup phase” but are generating revenue, you’ll have a better shot.
Lesonsky: What are the biggest mistakes most startups make when looking for financing?
Wood: They start at the wrong place. They may not have the right business plan for a venture capitalist but make the rounds anyhow, or they aren’t aware how crucial their credit score is for debt financing and spend their time going lender by lender, only to be disappointed. Research, research, research so you don’t make the same mistake.
Lesonsky: What’s the number-one thing you can do to boost your chances of getting startup financing?
Wood: Work on improving your credit score. Your personal credit score is the most important element of a startup loan application, hands down. Sign up for free credit monitoring through a site like Credit Karma and get to know the factors that affect your score. If you can settle some outstanding bills or work on your credit utilization and get your credit score up, you’ll improve your chances of finding a startup loan.
Lesonsky: At what point do lenders stop seeing a “startup” as a “startup”?
Wood: I’d say at about the two-year mark. Some lenders will start looking at a business differently at the six-month to one-year mark, but two years is a pretty good mark across the board.