Financing Your Business Out of the Startup Phase

If you’re starting a small business, does that mean you’re running a startup? And when is your business no longer a startup, but an established company?

There is a difference between running a startup business and having a business that’s in the startup phase. Even if your small business isn’t technically a startup, you share the same goal of wanting to get your business out of the startup phase.

To become a mature and established business, you’ll need to survive the first two years. Getting out of the startup phase is easier said than done. It requires the right funding to unlock that next phase.

What is a startup?

When you think of a startup company, what comes to mind? Startup implies a hip Silicon Valley tech company looking to “disrupt” a traditional industry. The CEO wears a hoodie and the office has a ping pong table.

These are stereotypes, but they come from the type of businesses that make a splash in the news and attract venture capitalists and angel investors. Startups are generally defined as businesses offering a new and unique product or service under risky conditions.

When is your business out of the startup phase?

Whether or not your business is still in its beginning stage goes beyond the time it’s been established. Other factors that impact whether your business is still in startup mode include:

  • The business is hiring employees: Only 20 percent of small businesses have an additional employee besides the owner.
  • The business is profitable: The Federal Reserve found that among the 80 percent of non-employer firms, the majority are not making a profit or are only breaking even.
  • The business has survived its first year: According to the Small Business Association (SBA), more than 20 percent of small businesses don’t survive their first year.

There is no concrete rule determining when a business is out of the startup phase, but meeting above criteria help when looking for funding.

Financing beyond the startup phase

Traditional lenders like banks and credit unions consider businesses to be in the startup phase if they’ve been open for less than two years. Because the business is less established, funding can be challenging – but not impossible – for these young businesses to obtain. Here are some options:

•Unsecured Lines of Credit (ULOCs) – this funding product is a revolving credit account which allows you to draw funds up to a limit. A ULOC comes with defined repayment terms and resulting interest. The benefit of this funding option is being able to take funds as you need them, and not one large lump sum.

•401(k) Rollover Funding – this aptly named product means you are rolling over money from one investment to another investment (which could be your business!). A Rollover is not a loan, so it doesn’t come with terms, collateral requirements, or a repayment agreement. Businesses in the startup phase or Startup businesses qualify for this funding option.

•Working Capital Loans – Working Capital loans are not used to buy long-term assets or investments and are, instead, used to provide the working capital that covers a company’s short-term operational needs such as equipment, marketing, technology, inventory, or salaries.

Tenet Financial Group can help you determine the smartest way to grow your business with right funding options. We know it’s confusing, complicated, and challenging to research and understand everything without guidance. Contact our funding consultants today or call (888) 901-3335 and select Option 9 to connect with our team – we specialize in Small Business Funding You Can Trust.