How to Get a Startup Business Loan

how to get a startup business loan

Estimated reading time: 3 minutes

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 initially expected. But, 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 get closer to opening your business’s doors.

Things like furniture, equipment, supplies, inventory, legal fees, logo design, and marketing will add up quickly. The good news? Several business loan options are available. 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 lenders have stringent startup borrowing requirements, so do not be upset if your loan request is rejected. The typical qualification requirements include a couple of years in business, a strong credit score, and robust year-over-year (YOY) revenues.

However, you might be able to qualify for startup financing if you have a favorable personal credit score. If your credit score is low, there are things you can do to raise it before applying for a startup loan. First, 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.

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. In addition, specific 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 are SBA 7(a) small loans, which can be used for 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 specific loan amounts. You and your SBA-approved lender can negotiate the interest rate, but the rate cannot exceed the maximum 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. Private investors, nonprofit organizations, and alternative lending companies offer microloans in smaller amounts, say between $5,000 and $50,000. If you were wondering, the average microloan over the past two years is $12,000. Like traditional startup loans, microloans must be repaid with interest and applicable fees over a specific period.

Startup loans without collateral.

Some lenders offer startup loans without collateral for qualified borrowers. A collateral-free loan will always have a higher interest rate than a traditional one. This is because collateral-free loans are riskier for lenders. If the loan is not repaid, the lender will not be able to claim any collateral as compensation. 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 generate revenue to pay it back.

Strategies for success.

An essential part of startup business success is choosing the right lending resource to best address your funding needs. Do not just sit back and assume that your lender will approve your startup loan because you have used their services for many years. Instead, take some time to research all of your options to make an informed decision.

Balboa Capital, a Division of Ameris Bank, is not affiliated with nor endorses the Small Business Administration. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.