Startup Business Loan: How to get a small business loan for your startup
Reading Time: 14 minutes How to get a startup business loan
You’ve got a great startup idea. You’re passionate about it, and you know it has potential. But how do you get the money to get started?
How to start a business with no money? One way is to take out a loan. But what kind of loan should you get? And how do you qualify?
Here’s everything you need to know about getting a startup business loan:
What is a startup loan?
A startup business loan is a type of financing that’s accessible to businesses with limited—or no—business or credit history.
Startup founders can opt for various types of financing to get the working capital they need to start and grow their businesses. Common options include term loans, U.S Small Business Administration (SBA) loans, business credit card, asset-based financing and crowdfunding. These loans typically have lower interest rates than traditional bank loans due to the borrower’s lack of established business history or credit rating.
Why do you need a startup loan?
You might be wondering why you need a startup loan. The answer is simple: to get your business off the ground.
Starting a business is expensive, and getting things going without funding can be tough. A startup loan can help you cover the costs of everything from rent to inventory to marketing.
Of course, taking out a loan comes with its risks and rewards. But if you’re smart about it, a startup loan can be the boost your business needs to succeed.
So, if you’re considering starting a business, don’t forget to consider a startup loan. It could be just what you need to get your business up and running.
To fund initial business costs
When starting a business, many initial costs need to be funded. Examples include:
- Business licenses and permits: These are required in most states and counties and can cost anywhere from a few hundred to several thousand dollars.
- Startup supplies: Items like office furniture, computers, printers, fax machines, and telephones need to be purchased before opening for business.
- Legal services: Lawyers can help draft contracts or agreements between partners/employees/vendors/customers etc., as well as assist with other legal matters such as setting up LLCs or corporations etc.
To purchase equipment
When considering an equipment loan for your startup, you may be able to finance the purchase of a wide range of machinery and equipment, including computers, furniture, ovens, machinery, medical equipment and supplies. Depending on the type of loan you apply for (e.g. SBA 504 loan), you may also be able to use it to fund larger purchases such as real estate or construction materials.
To pay for operational costs
Operational costs are expenses that are necessary for a business to run. These include items such as rent, utilities, payroll and inventory costs.
Operational costs are important for a startup loan because they help ensure the business has enough money to cover its everyday expenses while building its revenue stream. A line of credit can provide short-term funding for these expenses, while a loan can be used to purchase or refinance vehicles needed for operations. By providing this type of financial assistance, lenders can help startups succeed in their early years when they may not have sufficient cash reserves.
To establish a credit history
A startup loan can help establish a credit history for a new business by providing the opportunity to build up a track record of repayments. When taking out a loan, it is important to ensure that the lender reports your repayments to the credit bureaus, as this will help build up your credit score over time. Additionally, having excellent credit, offering high-value collateral and having at least two months of cash reserves on hand can increase your chances of approval from lenders.
To expand the business
A startup loan for expanding a business is designed to provide small businesses with the funding they need to grow and develop. This type of loan can be used for a variety of purposes, such as purchasing or refinancing cars, vans and light trucks that help keep the business moving; buying equipment or machinery; hiring new employees; upgrading facilities; expanding services or products lines; launching marketing campaigns; developing new websites or mobile apps; etc.
To invest in expansion products
A startup loan can help you invest in the cars, vans and light trucks needed for your business to thrive.
With a competitive rate fixed for three years, this loan offers added peace of mind while budgeting for capital funding improvements or expansion. It also provides convenience as you can simply renew it if you need a longer term.
To cover short-term cash flow gaps
Examples of short-term cash flow gaps that need to be covered with a startup loan include the following:
- Temporary cash shortage: If your business is experiencing a temporary cash shortage, a short-term business loan can provide the funds you need until profits increase.
- Seasonal income gap: If there is a gap between the income you receive during certain seasons and the expenses associated, a short-term loan can help bridge this gap until revenues return to normal levels.
- Expansion needs: If you plan on expanding your business but don’t have enough capital, taking out a short-term loan could provide you with the funds needed for expansion while also providing liquidity for day-to-day operations.
To increase profit margins
A startup loan can help increase profit margins by providing businesses with the cash they need to keep running while they wait for customers to pay their invoices.
This allows businesses to close the pay gap between billed work and payments to suppliers and contractors, allowing them to quickly accept new projects and grow their business faster by hiring new workers.
To finance growth projections
A startup loan can help finance growth projections by providing up to 90% of an equipment purchase, capital improvement or expansion at a competitive rate. This can help reduce the financial burden on the business owner and provide peace of mind as the rate is fixed for three years. Additionally, borrowers can renew their loans for longer terms if needed.
To take advantage of financing options.
We offer a variety of financing options for your business with a startup loan, including:
- Purchasing inventory and materials
- Refinancing debt
- Financing account receivables
How to get a business loan for a new business?
You’ve decided to take the plunge and start your own business. Congratulations! This is a huge accomplishment and something you should be very proud of.
Now, it’s time to get down to business and figure out how you’re going to finance this new venture. One option is a loan from a bank or other financial institution. But getting a loan for a new business can be tricky- especially if you don’t have any collateral or credit history established yet.
Here are some tips on how to get a business loan for your new business:
Step 1: identify the type of business loan needed
The types of business loans needed for a new business will vary based on the lender and type of financing chosen. For example, traditional forms of business funding may be more difficult to get as a startup, so it’s important to consider other options such as small-business grants, crowdfunding or other financing option altogether.
To identify the type of business loan needed for your new business, you should first determine how much capital you need and how you plan on using it. You should also review common eligibility criteria for each type of loan to assess where you stand before applying. Additionally, it is important to review documents related to your loan offer thoroughly before signing, so there are no surprises later.
Step 2: Calculate the amount of capital needed
The first step in applying for a startup business loan is to calculate how much money you need to get your business off the ground. This will give you a better idea of which type of loan makes the most sense for your needs.
Step 3: Search for lenders online
The internet has made searching for lenders offering start up business loans easier. You can use various online tools to compare lenders and find the best rates and terms for your needs. Be sure to read reviews and compare fees before choosing a lender.
Step 4: Check if any requirement exists for age, employment history or credit score
If you’re looking to get a business loan for startup, there are a few things you’ll need to do to qualify. One of these is ensuring that you meet any requirements regarding age, employment history or credit score.
For example, some lenders may require you to be at least 21 years old to qualify for a loan. Others may want to see that you have a minimum amount of time in your current job or a certain credit score.
Once you know the requirements, the next step is gathering the necessary documentation. This may include your business plan, financial statements, tax returns and bank statements.
Step 5: Check if any limit exists on the amount of time that has passed before applying for a loan
The limitation period for applying for a business loan varies depending on the lender. Generally, the application process takes 15 minutes or less and can be completed online.
The time it takes to receive funds after approval depends on your chosen lender. Some lenders offer loans funded within 24 hours, while others may take longer periods. Additionally, lenders may have different limits on how much they are willing to lend based on your business needs and credit score, so it is important to explore your options before making a decision.
Step 6: Read reviews and customer feedback on previous loans offered by the lender
Reading reviews and customer feedback on previous loans offered by the lender can help you get a business loan for a new business because it will give you an idea of what to expect from the lender. It will also help you understand the types of loan terms and conditions each lender has, their processing timeframes, and their customer service reputation. This way, you can be better prepared to apply for a loan and make an informed decision about which lender is right for your needs.
Step 7: Verify that the loan meets the country’s regulatory requirements
The final step in getting a small business loan for your startup is to verify that the loan meets the country’s regulatory requirements. This includes ensuring that the interest rate is within the legal limit and that the loan is for a permissible purpose. You will also need to provide documentation to the lender proving that your business meets these requirements.
Step 8: verify if there is any security deposit required for the loan
The final step in getting a business loan for your startup is to verify if any security deposit is required. This will vary depending on the lender, but it’s important to know any potential fees associated with the loan. Some lenders may require a security deposit to secure the loan, so ask about this before you agree to anything.
Step 9: Ask questions if there is something unclear in the above steps
Don’t hesitate to ask questions if you’re unsure about something in the above steps. The Small Business Administration (SBA) is a great resource for small business owners, and its loan programs can be very helpful. However, the process can be confusing, so it’s important to get clarification if you need it. You can also talk to your local chamber of commerce or SCORE office for more information.
Getting a small business loan for your startup can be a great way to get your business off the ground. However, it’s important to research and understands the process before applying. With a little preparation, you can increase your chances of getting approved for a loan that meets your needs.
Types of loans for startups
Starting a business is an exciting time, but it can also be a bit overwhelming. There are many things to think about and decisions to make. One of the most important decisions you’ll have to make is what type of financing you’ll need to get your business off the ground.
There are many different options, and knowing which is right for you can be tough. To help you out, we’ve put together this quick guide on some of the most common types of loans for startups.
Microloans
Microloans are small business loans for relatively small amounts, usually less than $50,000. They may be backed by the Small Business Administration (SBA) or offered by nonprofit organizations specializing in helping small businesses get funding. These lenders tend to take a more holistic approach to underwriting loan applications, considering the borrower’s business plan, geographic area, industry and management team’s past success and credit.
Business loans
Business loans are types of loans that can be used to start or grow a business.
Banks or other financial institutions typically offer them and require the borrower to repay the amount borrowed plus interest. Business loans can either be secured or unsecured, depending on the borrower’s creditworthiness and ability to repay. Secured loans involve collateral such as real estate or vehicles that can be used as security for the loan in case of default. Due to the increased risk, unsecured business loans do not require collateral but have higher interest rates than secured ones.
SBA loans
The SBA loan for startups offers a variety of benefits, including:
- Longer terms and lower down payments than conventional term loans.
- An affordable solution to provide the necessary capital for startup costs, equipment purchases, capital improvements or permanent working capital.
- No collateral is required to secure the loan.
- Government backing ensures certain repayment terms and protections against defaulting on the loan.
Business credit cards
Business credit cards can be an option for startups looking for a fast and convenient funding source. They offer the following features:
- Fast application and approval process compared to traditional loans.
- Ability to approve based on personal credit score alone, without providing valuable collateral.
- Unsecured access to funds that can be used for anything from office supplies and furniture to legal fees, equipment and larger purchases.
- As-needed use with only interest charged on unpaid balances at the end of each billing cycle (typically every 30 days).
- Some cards offer introductory 0% APRs that let borrowers make interest-free purchases for six months up to two years.
Merchant cash advances
A merchant cash advance (MCA) is a type of financing where a financial provider extends a lump-sum amount of capital and buys the rights to a portion of the merchant’s credit and debit card sales. The provider earns revenue from taking a percentage of each sale until the advance is paid back.
Invoice financing
Invoicing financing is a type of loan that allows businesses to receive upfront cash for their outstanding invoices.
This type of financing is ideal for startups that need cash flow but have difficulty waiting for customers to pay their invoices. Invoice financing allows businesses to close the pay gap between billed work and payments to suppliers and contractors, allowing them to accept new projects and grow their businesses quickly. There is little paperwork involved in obtaining this type of loan as long as the business has invoiced business clients for goods or services and is waiting to get paid.
Crowdfunding
Crowdfunding is a fundraising method in which individuals contribute small amounts of money to a project or cause. It allows business owners to raise capital from friends, family and the general public without losing their investment.
Loans from banks
Banks provide a variety of loans for startups, including:
- Business bank credit card – This loan is typically used to fund small business expenses such as inventory or advertising. It offers a low-interest rate and no minimum payment requirements.
- Business line of credit – This type of loan provides larger amounts than a business bank credit card but requires frequent documentation and financial reporting to remain eligible for continued funding. It also comes with an adjustable interest rate that may change over time based on market conditions.
- Short-term or long-term loan – Depending on the startup’s needs, banks may offer both short-term and long-term loans with varying terms and conditions depending on the specific loan program offered by the bank in question.
Leasing
A startup leasing loan is a type of financing that allows business owners to rent or lease the equipment they need to run their business, such as cars, vans and light trucks. The borrower pays a set monthly payment throughout the contract and can purchase or return the item at the end of the lease period.
Business partners
There are several types of loans for business partners, including:
- Merchant Cash Advance (MCA): This type of loan is specifically designed for small businesses that need funding quickly and do not have enough collateral. It offers quick cash advances up to $250,000 with low-interest rates and no collateral requirements.
- Term Loan: A term loan provides long-term financing to help cover expenses such as equipment purchases or renovations. It typically has a longer repayment period than other types of loans but offers lower interest rates than credit cards or personal loans.
- Business Line of Credit (LOC): A line of credit allows businesses to access funds as needed without having to apply each time; it also gives them more control over their budgeting since they only have to pay interest on the amount they use instead of the entire amount borrowed upfront.
FAQs
Here are some of the most frequently asked questions about startup business loans with no revenue:
How to finance a startup business?
There are a few different ways to finance your startup business. One way is to take out a small business loan. You can use the money from the loan to help pay for things like startup costs, inventory, and marketing. Another way to finance your startup is to raise money from investors. This can be done through crowdfunding or pitching your business idea to potential investors. You can also use your savings to finance your startup business. Whatever route you decide to take, research a solid business plan before moving forward.
What is required to get a small business loan?
You’ll need to gather a few key pieces of information to get a small business loan. First, you’ll need to have a well-defined business plan that outlines your startup costs, how you’ll generate revenue, and your target market. You’ll also need to provide financial statements that show your business is in good standing. Finally, it would be best to have a solid personal credit score to qualify for most loans. If you have these things in order, you’ll be well on getting a small business loan for your startup.
Do business loans look at personal credit?
Lenders usually check an applicant’s credit score when approving a startup loan. This helps them assess the risk of lending money and gives them an idea of how likely the loan will be repaid. However, getting a business loan with bad credit is possible if you have strong collateral or other payment options in place.
How much can you get for a startup business loan?
Startup business loans can range anywhere from $500 to $750,000, with larger loan amounts usually reserved for startups with long business histories, substantial annual revenue and strong credit profiles. Generally speaking, the amount you can get for a startup business loan will depend on your lender’s assessment of your business plan and credit profile.
- Startup Business Loan: How to get a small business loan for your startup - February 1, 2023
- How to Start a Small Business: An Efficient Guide to Your Success - October 12, 2021
