How to Get a Startup Business Loan

how to get a startup business loan

If your dream is to become a successful entrepreneur, you can do so with a good business idea, a strong plan and vision, and a willingness to work more than you originally expected. Of course, you will also need a sufficient level of capital to launch your startup. That is because your list of expenses will get longer as you as you get closer to opening your company’s doors.

Things like furniture, equipment, supplies, inventory, legal fees, logo design and marketing will all add up, and fast. The good news? You there are a number of business loan options available from banks, credit unions and online lenders. This Balboa Capital blog article can help guide you in the right direction; it explains how to get a startup business loan.

Be prepared for rejection.

Most banks and lenders have difficult borrowing requirements for startups and long-established businesses, so do not be upset if your traditional loan request ends up being rejected. Their qualification requirements typically include a couple of years in business, a strong credit score, and robust annual revenues.

However, you might be able to qualify for startup financing if you have a personal credit score of 700 or higher. If your credit score is low, there are things you can do to raise it prior to applying for a startup loan. Pay your bills early, maintain little (or no) balance on your credit cards, and check your credit report from one of the leading credit bureaus. If you see any errors or discrepancies on your credit report, make sure you dispute them so they can be removed.

SBA loans for startups.

The Small Business Administration (SBA) has a few loan options for startup businesses. For starters, the SBA’s microloan program offers loans of up to $50,000 that can be used for working capital, inventory, furniture, fixtures, equipment and machinery. Certain nonprofit childcare centers might also be eligible for SBA microloans. Interest rates will vary depending on the business owners’ unique financial situation and individual credit rating, and loan repayment terms of up to 72 months are available.

Next up are SBA 7(a) small loans, which can be used working capital, leasehold improvements and asset purchases. The maximum limit of an SBA 7(a) small loan is $350,000, and collateral is required for certain loan amounts. You and your SBA-approved lender can negotiate the interest rate, but the rate cannot exceed the maximum that is indicated in the SBA’s rules and guidelines. You can find a list of SBA-approved lenders on the SBA website.

Startup loans from microlenders.

The SBA is not the only resource for microloans. There are private investors, nonprofit organizations and alternative lending companies that offer microloans in smaller amounts, say between $5,000 and $50,000. In case you were wondering, the average microloan over the past two years is $12,000. Similar to traditional startup loans, microloans need to be repaid with interest, plus any applicable fees, over a specific time period. Microlenders are a good option if you need short-term cash for your startup and you do not have the credit profile that most banks or credit unions look for.

Startup loans from alternative lenders.

Many alternative lenders offer startup business loans. You will find them to have easier qualification requirements than a bank or a credit union, which is good news. However, loans from alternative lenders are usually collateral-free, which means they come with higher interest rates. This is because unsecured loans are riskier for lenders. If an unsecured loan is not repaid, the lender will not be able to claim any collateral as compensation. That said, if your startup business cannot get off the ground without funding, a loan with a higher interest rate might be a good idea since you will eventually be generating revenue to pay it back.

Strategies for success.

An essential part of startup business success is choosing the right lending resource that can best address your funding needs. Do not just sit back comfortably and assume that your bank or credit union will approve your startup loan just because you have been using their services for many years. Take some time to research all of your options so you can make an informed decision.