The number of small business loan solutions seems to be growing by the day. These new age loans are making a huge difference for many businesses, helping them achieve their goals and progress. The lenders themselves are extremely flexible, which enables more businesses to use their money and brings them more clients. However, there is one thing that all these lenders have in common, they are reluctant to work with startups. As getting a traditional loan is nearly impossible for these businesses, this kind of attitude from less conventional loan providers makes the already complicated situation of running a startup much harder.
New Age Loans: Who Benefits from Them and Why
Today is the age of new lenders as bank loans are getting harder to obtain for businesses with every passing year. As ‘traditional’ financing becomes unavailable, new age lenders offer alternative funding for everyone, which creates multiple opportunities.
Unlike options offered by banks, these loans are much more flexible. In fact, they often require no more than your identification papers to obtain. Therefore, it’s no wonder that the majority of small businesses use this financing in order to function.
With these loans, you don’t even have to provide a business plan to persuade the lender that your idea has merit. In the majority of cases, you can use the money for any purpose. You don’t even have to consider it a ‘business loan’, and you are the one to decide how to use the money you get most effectively.
This freedom means that every company that needs financing, can use the help of new age lenders to get it. And they will be welcome, regardless of their history, potential, or credit score. Simply put, the lenders seem to be accepting of everyone and works out brilliantly for them. For example, in Australia, about 25% of businesses that have used online loans lasted for nine years or more. The overwhelming majority of them get through three years at the very least.
Therefore, everyone benefits from these financial deals. The only exception to this rule seems to be startups. Surprisingly, new age lenders are rather reluctant to finance emerging startups that have zero income yet.
Why Lenders Don’t Like Funding Startups?
The main reason why lenders aren’t willing to provide funds to emerging startups is the risk. Unfortunately, statistics of small business survival don’t offer much hope. Some sources, like Medium, go as far as claiming that 90% of startups fail. From this point of view, a lender’s position is understandable.
Startup financing is considered high-risk by default, so it’s no wonder that it’s mostly provided by venture capital. This is a risky type of investment that offers funds to a business’ potential. However, note that while venture capitalists are much more interested in startups, their help isn’t guaranteed.
In fact, if you consider how VCs choose a company to invest in, you’ll see how fickle and shallow some of them can be. Therefore, as a business owner, you need to research and try all your options. Prioritize the list in order of long-term benefits for your business and start your quest of financing a startup.
Bear in mind that according to CBInsights, 8% of startups fail because they cannot attract an investor’s interest or get other financings. Other reasons why this happens include:
- Lack of capital, which can be converted into cash to pay off the loan.
- Lack of collateral to secure the loan.
- Limited information about the borrower.
- Bad credit score.
- Lack of customer base.
Note that lenders also aren’t keen on offering loans to someone with no experience. Therefore, even if your startup is very new, you should provide paperwork that proves your involvement and therefore experience in your chosen field. At the very least, you should show that someone at the top management position of your new company has experience.
Where Should a Startup Go to for Financing?
For the majority of startups, financing is a big challenge and there is no single best option. Therefore, you need to research each option available to you. While doing this, do not forget that today you don’t have to stick to lenders within your city only. You can use online loans to secure financing regardless of your location.
In order to increase your chances to get the funds you need, be sure to create a great presentation of your startup. Some lenders might ignore it as it’s not a mandatory requirement. However, many will be impressed by this kind of preparations and therefore, your chances of getting a loan will increase exponentially.