Entrepreneurial Funding 101: Exploring Line of Credit Options for Startup Ventures

The call for entrepreneurship has been heard by many—according to the Global Entrepreneurship Monitor, over 31 million Americans (16 percent) of the adult workforce are entrepreneurs. Some of the top reasons entrepreneurs list for choosing to step out on their own include: wanting to be their own boss, dissatisfaction with corporate America, and a desire to pursue their passions.

Whatever the reason for becoming one, all entrepreneurs face a long list of challenges, risks, and rewards—the need for funding a startup being at the top of the list.

In this article, we will cover several options for funding your startup, how they work, and which option is best for you. 

Credit cards
Credit cards are a great choice for startups as they require few qualifications or business history to apply for—all that most require is a good personal credit history. Many companies have attractive introductory offers and generous rewards (such as cashback or travel points). Credit cards can help you start spending quickly and facilitate day-to-day operations.

A credit card may be the right option for your startup if:

• You want financial flexibility.
• You need to get up and running quickly.
• You have an excellent personal credit history.

Line of credit with a CDFI
A line of credit with a community development financial institution (CDFI) can be an excellent choice for startups—CDFIs are private financial institutions created to provide funds to those left out of more traditional banking and investment options. The capital CDFIs offer is generally short-term and self-liquidating (fully amortizing loans), and the goal is to create financial self-sufficiency for underserved communities (rural and urban) to aid economic and community growth. 

A line of credit with a CDFI may be the right option for your startup if:

• You’ve been turned away by traditional banks.
• You or your business/startup are part of an underserved community.
• Your business will increase economic growth development for your community.

Home equity loan
For entrepreneurs who are also homeowners, tapping into home equity can be a viable option. A home equity loan (AKA a second mortgage) lets you access your home equity as a lump sum that can be used for business purposes with your home as collateral. Home equity loans can offer lower interest rates, larger loan amounts, and flexibility in how you use your funds. If you manage your home equity loan well, you can even improve your credit score.

A home equity loan may be the right option for your startup if:

• You want financial flexibility.
• You hope to improve your credit score.
• You need a lump sum to start your business.

Invoice factoring
Invoice factoring is a great option for startups and businesses that have not been running long enough to qualify for a traditional small business loan. When a business factors its invoices, it sells its accounts receivable to an invoice factoring company. The factoring firm advances cash to your business and then collects on the outstanding invoices. The balance is paid to the company less a service fee. Invoice factoring is used in a variety of scenarios and industries, from startup to high growth to recovery.

Invoice factoring may be the right option for your startup if:

• You have little to no business financial history.
• You want an option that does not require collateral.
• You need quick cash flow. 

Conclusion
There are multiple options to secure funding for your startup, the key is figuring out which one best suits your specific business and personal goals. Regardless of what option you choose, when looking for a funding institution or partner look for someone who will:

• Communicate well.
• Pay attention to the details.
• Work in line with your business goals.

Looking to secure capital for your business? Whether you are a new business, going through a rough financial season, or hoping to take advantage of an exciting growth opportunity, we can help.

Prairie Business Credit is a national working capital provider to young, growing, or recovering businesses. We offer accounts receivable financing, purchase order financing, and equipment financing. Our company serves both as a trusted financial resource and consultant to entrepreneurs dedicated to building their businesses and ensuring their success.

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