How to Get a Startup Business Loan

As a new business owner, you might be worried that you won’t qualify for any business loans because you don’t have enough revenue yet. At the same time, you can’t grow your business without money to invest in it. This is a tough dilemma to be in.

Luckily, there are options out there for business owners who are just getting started. Startup business loans are an excellent way to get your business up and running because they don’t require years of experience or a 6-figure revenue. Here’s how you can find, qualify for, and obtain a startup business loan.

Consider Alternative Funding Sources

Before you jump into startup business loans, make sure you’ve considered all of the options for funding your business. There are ways to fund a startup without going into debt. Namely, startup grants provide your business with an injection of funds that you don’t need to pay back. You can even find funding resources specifically geared toward women-owned startups and minority-owned startups.

There’s also crowdfunding, bootstrapping, and taking money from angel investors and venture capitalists. Each of these funding methods, including business loans, have unique benefits and drawbacks, so do your research before choosing one.

Decide on a Loan Amount

The first step to getting a startup business loan is deciding how much money you need. You’ll need to analyze your startup costs and take into consideration any other funding sources you’ve obtained.

However, you can’t simply state a magic number and receive it. You’ll also need to consider typical loan amounts offered by startup business loans. These amounts tend to range from $500 to $750,000, but the amount you can actually qualify for will depend on your business financials. It’s equally important to consider whether or not you can afford the loan amount you want. Use our startup business loan calculator to figure out what your monthly payments would be, and make sure you can afford them before borrowing.

Check Your Credit Report

Next, you’ll want to check your credit report and credit score before applying for any loan. Knowing your credit score will give you a sense of which loans you qualify for, and reading through your credit report will tip you off to any errors that might be impacting your credit score. It’s important to clear these up before applying for credit.

Your personal credit score is likely where you’ll want to focus. If you’re just getting started, you might not even have a business credit score yet. You can pull your personal credit report for free once each year, and it doesn’t hurt to check your business credit score as well. There are steps you can take to build or improve your business credit score before applying for a startup business loan, and doing so will help you qualify for lower interest rates.

Perfect Your Business Plan

Having a fantastic business idea is a great start, but it’s not enough to secure a startup business loan. You need to create a business plan that clearly details how you’ll execute your vision, including the following sections:

• Your mission and goals
• An overview of your business
• Expense sheet and financial projections for the next 5 years
• An analysis of your target market, industry
• Competitor analysis
• Sales and marketing plans
• Operations and management plans

The more detailed and clear your business plan, the more likely you’ll be to secure any type of funding, from startup business loans to grants and investors.

Choose the Right Startup Business Loan

There are many different types of startup business loans. You can opt for a secured loan, an SBA loan, or a startup business loan from a lender marketplace.

Secured Business Loans

A secured business loan is a loan that’s backed by collateral or assets owned by the business owner. This guarantee can be anything from equipment to real estate. If you’re in the very early stages of starting up your business, you might not have any collateral to offer yet. However, if you do have collateral, secured loans can be a good way to qualify for larger loan amounts when you still don’t have much revenue. Keep in mind that there is risk involved—if you fail to repay a secured loan, you could lose the collateral.

SBA Startup Loans

The US Small Business Administration (SBA) offers 2 types of loans that are good for startups: SBA Microloans and SBA Community Advantage Loans. The SBA Microloan program offers smaller loans of up to $50,000 to help new businesses grow. The average SBA Microloan amount is $13,000 and most require some form of collateral. The SBA Community Advantage Loan program offers loan guarantees as high as 85% on loans to business owners in underserved markets. You must prove that your business idea is viable, and you have to have good credit and fewer than 100 employees, but you don’t need to meet revenue or collateral requirements.

Marketplace Startup Loans

Lender marketplaces pair business owners who want to borrow money up with lenders that are a good fit for their needs. They’re a particularly good option for business owners who don’t have enough revenue or years in business to qualify for a business loan from a traditional bank, as marketplaces pool a wide variety of loans from all different types of lenders, including those willing to lend to startups. Many folks find it easier to qualify for business loans through lending marketplaces, and if your credit score is good enough, you’ll still be able to secure low interest rates and favorable terms.

Apply for a Startup Business Loan

Once you’ve improved your credit, prepared your business plan, and decided which kind of startup loan you want, it’s time to apply. While the application process for business loans can be lengthier than the process for personal loans, creating a detailed business plan means you’ll already have a lot of the necessary paperwork on hand.

If you’re approved for a startup business loan, make sure to read all of the fine print before accepting. You should have a clear sense of what you’re getting into—including any potential fees and what your monthly payment will look like—before signing on the dotted line.