Financing options for your startups with low credit

Financing options for your startups with low credit

Nowadays, there are several credit options in the financial market, and choosing the best way to invest in your company not only helps business growth but also provides easier payment. Each credit line can meet different needs within the company – for working capital, machinery/equipment, expanding inventory, or expanding the business – and, therefore, conditions may be different for each of them. 

Therefore, it is important to know which credit option is most appropriate to avoid setbacks and generate more savings for your business. After all, credit needs to be an alternative for your company’s financial development and not create a bigger problem. 

To help you make a conscious decision, we have prepared this complete content for you to understand what the main types of loans used by entrepreneurs are and know what can be advantageous for your micro or small business. Have a good reading!

Angel Investors 

Angel investors have generally experienced entrepreneurs who put their own money into early-stage companies, hoping for a future return. These investors now have a minority share of the business in which they invested, and they contribute not only with the financial investment but also act as mentors, in some cases. The goal is to support start-up companies, which have high growth potential. This type of financing for companies is also positive, as it does not overload the cash flow with the payment of monthly loans.

Microcredit 

Microcredit is a new modality of the loan market, aimed especially at small and micro-entrepreneurs. It is precisely a proposal by the federal government to encourage these micro entrepreneurs and, thus, promote the growth of the population’s income. The ease of granting credit and reduced interest rates are the differentials for this public to enter the market.

 This modality has one of the lowest interest rates in the market, reaching a maximum of 4% per month. But the micro-entrepreneur must meet certain requirements to have access to microcredit. 

  • Be over 18 years old.
  • The legal entity, MEI.
  • Pass the socioeconomic analysis of your financial condition and the situation of your enterprise.
  • The released amount of the loan depends on the payment capacity, size of the business, and its need.
  • You can apply for a loan of up to R $ 21,000.

Crowd lending

There are several online platforms, such as Mintos, Peer Berry, and Crowdster, etc. that offer business financing through the Crowd lending system. These platforms what they do is unite people who want to invest with companies that need financing. The advantage of using financing through Crowd funding and Crowd lending is that the person who invests obtains a considerably high interest (more than 6%), and the company that needs liquidity obtains a lower interest than if they went to a bank. 

The drawback is that not all projects are completed, that is, financing for companies is offered by several investors, and sometimes not all the necessary capital is obtained to complete the project. Crowd lending is used by individuals or companies that need liquidity but cannot access bank loans.

Investment funds 

If there is one form of corporate financing that has been talked about in recent years, it is fundraising. With nearly 4.5 billion euros raised by French startups in 2019, it seems that investment funds are the partners of choice for financing themselves. 

But what is it exactly? Quite simply to bring in investors, often organized within investment funds, to the capital of your company. In exchange for the funds provided, you give them a share of your securities (and the powers that go with it). Getting financing from an investment fund is therefore far from trivial operation. 

Besides, it is a method of financing that is aimed more specifically at companies with high potential, with an innovative project – such as startups. If, however, you decide to opt for fundraising, you will need to prepare well because it is a difficult exercise and the process sometimes resembles a marathon.

Concluding thoughts

Running a small business without financial stability is next to impossible. Plus, if you have a bad credit history, it gets even more challenging. However, thanks to the latest technology, modern problems arise from modern solutions. This is why it’s convenient to run your small business even with little or no financial backup. However, the final decision must be made after research and based on the type of business.

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