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Business startup loan options

Anyone starting a new business in Arizona must confront many aspects of commercial law. Any business start-up, however, remains an idea unless there is adequate financing. The most common financing includes personal savings, money from family and friends, venture capital or private investor. Other business startups must rely on traditional methods, such as bank loans.

Many times though, startups do not have adequate business history and credit for obtaining favorable loan terms. Other loan products fill this void. First, a startup can use equipment financing that allows the new equipment purchased for the business to serve as collateral. Usually, lenders are more willing to make these loans.

Its other advantages include the possible deduction of interest fees and financing from federal taxes, federal tax deductions for equipment depreciation and less documentation compared to term loans. This product also allows the immediate purchase of new equipment to generate revenue to pay off the loan.

Equipment financing usually requires a credit score over 600, annual revenue of $100,000 and at least 11 months in business. Newer businesses usually need a score of at least 680. Using a business credit card is another option.

This allows a lender to provide access to revolving credit or a maximum credit limit. Purchases on that card lowers that limit. Payments increase the limit and allows continued access to credit. It also provides the opportunity to build business credit, separates personal and business finances, allows efficient control of finances by tracking spending, and gives benefits and rewards such as discounts and cash back and low finance charges.

Each business credit card and company have different requirements. Higher credit scores usually lead to more benefits. A secured credit card, requiring a security deposit for a line of credit, is a similar option for those unable to qualify for a business card.

Finally, a credit line builder is untraditional but allows the business to work with a financing company and apply for multiple business credit cards. This can expedite applications and obtain approval for a set of business cards with higher limits. However, this requires strong personal credit with a score of at least 700.

A start-up company faces many legal issues on financing and regulatory compliance. An experienced attorney can help provide guidance on these issues.

Source: Entrepreneur, "How to qualify for a business startup loan," Jared Hecht, March 31, 2018

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