The coronavirus pandemic has closed hundreds of thousands of small businesses across the country, but now applications for new businesses are surging. In fact, the U.S. Census Bureau reports a 31% uptick for the week ending Nov. 7 compared with a year ago.
Drawing on ingenuity and lining up the right financing have been key for many COVID-era startups.
Read on for more about funding a startup during the pandemic, including success stories.
Why Start a Business Now?
A pandemic may seem like a risky time to start a business, but it has some upsides. Business closures mean less competition and likely bargains on office space as vacancies soar, says Barry Moltz, Chicago-based author and small-business consultant.
“You have a good chance to dominate the marketplace when others have left,” Moltz says.
Downsides of a COVID-19 startup include the inability to predict when the crisis will end and the risk that the economy could get worse before it gets better.
Nevertheless, the pandemic is proving to be the mother of invention. The health emergency is blending two types of entrepreneurship, explains Thomas Sullivan, vice president of small-business policy at the U.S. Chamber of Commerce.
“There’s dream entrepreneurship, where people want to do what they’ve always wanted to do,” Sullivan says. “Then there’s necessity entrepreneurship, and that includes when folks lose their jobs but still need to feed their children. Right now, with COVID, we’re seeing the two merge.”
How Can You Use Credit Cards and Loans to Start a Business During the Pandemic?
Even if you’re planning to use personal savings or profits from another business venture to get started, you will want to have a safety net, especially during uncertain times.
Qualifying for a business loan is always tough, but the pandemic has made it even harder, says Eric Goldschein, partnerships editor at JustBusiness and an expert on small-business financing and lending.
“Lenders are shyer and more risk averse right now,” says Goldschein, who suggests that entrepreneurs look at alternative and online lenders, as well as Small Business Administration microloans. “Also, consider 0% annual percentage rate credit cards, if you qualify: You won’t get a better deal than 0% interest.”
Consider these tips for using credit cards and loans to start your business without having to pay off a mountain of debt:
- Protect your credit rating. Even for business credit cards and loans, most creditors will check your personal credit score. The better your credit, the more low-interest options you’ll have.
- Organize your business documents. Creditors will likely ask for your articles of formation and business plan, plus tax returns and bank statements.
- Look before you leap. Business funding isn’t a blank check. Keep in mind that you will have to pay back the money you spend today, and these payments could limit growth and profit.
- Compare lenders. Choose a credit card that meets your needs, whether that’s with a 0% APR introductory offer or generous rewards or both. Read lender reviews and look for a loan that offers the lowest APR and terms that work for you.
- Stay on top of payments. Once you get a credit card or loan, be sure you can make your payments on time. With credit cards, cover at least the minimum amount due, but aim to pay off your balance each statement period to avoid interest charges. If you’re struggling to keep up with credit card or loan payments, talk to creditors about relief options.
Startup Successes During COVID-19
Entrepreneurs are finding opportunities in the health crisis and using business credit cards and SBA loans to not only survive but also thrive.
Baking was a side gig for Heather Ashley until the pandemic ravaged the hospitality industry and she lost her job.
“I had to do something,” Ashley says. “I thought, ‘If there’s ever a time to open my own place, it’s now.’ While other bakeries were closing, I signed a lease.”
She opened The Cookie Cake Co. in Jersey City, New Jersey. Because operating a storefront bakery is expensive, Ashley says she uses credit cards for short-term financing. Her business credit cards also provide valuable rewards and benefits, including extended warranty coverage for equipment.
Despite the risk, the reward has been great for Ashley. “I never thought I’d get my own storefront, and it’s even crazier that I did it during COVID,” she says.
“This really feels like an accomplishment,” Ashley adds. “My 7-year-old says she wants to work here when she grows up.”
Of course, the pandemic not only disrupted hospitality but also retail as brick-and-mortar stores shifted to a digital business model.
Barbie Coleman hadn’t planned to open a storefront for her online business when, “just before the world shut down, the perfect location became available,” she says.
“It’s in a historic residential neighborhood – the center of downtown,” Coleman says. “When retail collapsed, I had already gone down the path of getting the store ready and wasn’t going to stop.”
Her Columbus, Ohio-based Urban Sundry brand sells everything from home goods and accessories to pet supplies.
Coleman says she used a business credit card to purchase inventory and signage for the store. Then she applied for an SBA Economic Injury Disaster Loan to pay down her credit card debt and cover operations.
Coleman’s approach has worked: Sales have been strong. She exceeds safety protocols and opens her store after-hours to private shoppers who still don’t feel comfortable.
“People want to shop to feel normal by going into a neighborhood store and picking up a few items,” Coleman says. “Plus, they want to support small business.”