Startup Business Loans

Savvy business people know that the best way to start up a small business is with a sound financial plan. A common myth, however, is that you need a lot of startup cash.


But thanks to new government-backed loan programs, even just starting on your own for the first time can be much less painful financially than you might think.


Problem – funding. Where and how much you can access funds to start your business is a huge problem for most businesses. Since not everyone may have the financial muscles to do it on their own, you might need a little help.

Solution – Fortunately, there are multiple sources of funding businesses can explore. The largest percentage opt for loans. However, this can be a challenge, especially for start-ups. Most lenders, especially traditional lenders, consider them too risky.


Not to worry, though. There are still lenders willing to take a chance on you, including micro-lenders. We’ll explore such options, and tell you everything else you need to know about start-up business loans.

  • Est APR
  • Min Credit Score
Credibility Capital
  • 6.99 - 24.99%
  • 650
Funding Circle
  • 12.18 - 36.00%
  • 660
  • 9.00 - 99.00%
  • 600
  • APR range
  • Fees
  • Terms
  • Amounth
  • Unemployment protection
Bank 1
  • 6.95%–35.89%
  • Up to 5% transfer fee
  • 3–5 years
  • $1,000–$40,000
  • No
Bank 2
  • 6.95%–35.89%
  • Up to 5% transfer fee
  • 3–5 years
  • $1,000–$40,000
  • No
Bank 3
  • 6.95%–35.89%
  • Up to 5% transfer fee
  • 3–5 years
  • $1,000–$40,000
  • No

Table of Contents

What is a Start-up Business Loan?

A start-up business loan is a financing option available for new businesses with little, or no credit history. Such include SBA microloans, business credit cards, asset-based loans, et cetera.


Like we earlier mentioned, getting start-up loans is a hassle since most traditional lenders consider them high-risk.


The start-up loan, if approved, will help the business meet its financial needs. That includes working capital, paying for employee salaries, rent, or utility bills. It also includes the purchase of equipment, furniture, inventory, machinery, or supplies.


If your business also wants to acquire a real estate property or has some ongoing construction project, then the loan will come in handy.


Small businesses are a key aspect of the US economy, accounting for up to 90% of jobs in the market if the 2020 Federal Reserve report is anything to go by. This a huge responsibility on the businesses’ side, that’ll require them to have access to funds.


Banks and online lenders are the most common sources. Like we also mentioned, there are other multiple options to be explored by businesses. Each of these comes with its set of pros and cons.


For instance, while banks are most people’s resort due to their affordable rates and security, they have some of the strictest lending guidelines borrowers must meet to be considered for loans.


Online lenders, on the other hand, don’t have strict lending rules. They hardly even consider your credit score. But, on the flip side, they often prove very expensive.

Hot Tip:

Small businesses are a key aspect of the US economy, accounting for up to 90% of jobs in the market if the 2020 Federal Reserve report is anything to go by.

Requirements to Qualify

Since there are multiple options to explore when it comes to start-up business loans, narrowing down the requirements would be almost impossible. They will differ based on the exact loan type, the lender in question, and your business type and financial strength.


But, here are the general requirements;


  • Business – First off you must have an existing business or comprehensive business plan. Most lenders will easily approve your loan if your business has been operational for at least six months before the application. Again, the business should be operating in the United States.
  • Collateral – This isn’t really a requirement, but it’ll give you an upper hand with most lenders. You’ll enjoy easy and faster approval, plus, lower interest rates because of reduced lender risk. But, this doesn’t apply to all start-up loans. With asset finance, for instance, the underlying asset will act as collateral.
  • Credit score – simply put – the higher your credit score, the higher your chances of qualifying for better loan products with lower rates and better loan terms. And, this is mostly your credit score and not that of the business. Most businesses starting out hardly have any score.
  • Legal documents – you’ll also need all the registration and licensing documents for your business. That also includes any relevant legal contracts like lease and certificate of incorporation. The principal applicant’s ID, driving license, or travel passport will also be required.
  • Financial documents – that includes tax returns reports, bank statements, cash and credit card sales, and unpaid invoices. Depending on the lender, business type, and the loan product in question.

Types of Start-Up Business Loans

Here are some of the loan products start-up businesses can explore;


1.      SBA Loans

This can be an excellent option if you’re looking for some quick funds to start your business. The funds come in a lump sum and can be used for any purpose – whether paying for utility bills, employee salaries, or stock.


With the Small Business Administration loans program, the funds are given to zero-profit lenders and other financial institutions who then issue them to deserving start-ups and small businesses.


With SBA loans, you can borrow from $500 to as high as $50,000, payable for up to six years. These loans are also known to attract lower interest rates of between 8% and 13%.


SBA loans generally come in lower amounts. They may, therefore, be unsuitable, for projects that require larger capital input.


Their application process isn’t as strict. You only need an average credit score and a relatively shorter time in business. These are some of the most affordable loans businesses can come across today.


They focus mainly on businesses owned by minorities – mostly women and persons with disabilities.


2.      Equipment financing

Here, a lender helps you purchase an asset. That could be a vehicle, furniture, equipment, or real estate. Lenders cover up to 100% of the total cost. The majority covers up to about 85% of the value of the asset.


This is like any typical loan – the lender offers the funds in a lump sum then you proceed to acquire the asset. For this, you won’t need any collateral. The asset you’re acquiring acts as collateral.


Equipment financing loans attract relatively lower interests and flexible loan terms.


3.       Business Credit Cards

These are revolving credits. They are the option you want to consider when you can’t qualify for other business financing products.


So, why would they be important to a start-up? They are easy to qualify for. Unlike traditional lenders like banks, business credit card lenders have less strict loan requirements that almost any business can attain.


They’re also fast. You mostly have your cash just a few hours after application. They also bring along the freedom to borrow the amount you feel most comfortable with. And, even better, they are unsecured, and won’t require any collateral.


You, therefore, won’t risk losing your house, car or any property should fail on repayments. Your repayments are scheduled monthly, bi-monthly, or quarterly. The card is mostly refilled to the limit upon repayment so you don’t have to keep reapplying.


However, on the flip side, business credit cards attract the highest interest rates and general loan costs. Also, watch out for scam lenders preying on innocent buyers.


4.      The 7(a) Loan Program

This little-known loan program offers low-interest start-up loans to help small companies get off the ground. It’s a great option for businesses that don’t qualify for the 504 loans.


7(a) Loans are available in full amounts of up to $5 million and have longer repayment terms than 504 loans. To apply for a 7(a) loan, however, you’ll need to submit more collateral and personal guarantees.


How much money can you get? The SBA guarantees up to $5 million on your 7(a) loan application, but because of limited funding, only about 30 percent of applications are approved per year.


That said, the program’s more flexible credit requirements make it a popular choice for women and minority entrepreneurs.


5.      The SBA 504 Loan

The SBA 504 loan’s favorable interest rates and longer repayment terms give you more options when financing your business startup costs.


You could get as much as $5 million to buy or renovate your commercial property, or as much as $250,000 to expand an existing business.


Unlike the 7(a) program, you don’t need a personal guarantee because the 504 loan carries a low rate of interest and longer repayment terms. And unlike conventional bank loans, you won’t have to pay back the principal until the property has been sold.


How much can you get? The SBA 504 loan program allows borrowers to obtain funds up to 50 percent of the total costs for most real estate, equipment, and working capital needs. So if your business needs $50,000 to buy or lease a car, truck, or other vehicle.

Pros and Cons

Pros Cons
Low-interest rates
If you have bad credit, getting an FHA loan might be difficult
Longer repayment terms
FHA loans have shorter terms
Lower collateral requirements

Small Business Start-up Loans

Lenders provide loans based on the size of your business, whether it’s a start-up or established company.


Start-ups qualify for microloans up to $35,000, while larger businesses can receive seven-year loans of up to $5 million. The maximum loan amount is based on several factors including the current loan balance of your business.


The SBA, for instance, provides businesses with revolving lines of credit that can be used for daily operating expenses, inventory purchases, and other needs.


And since the SBA is a government agency that exists to promote small business success in the U.S., you can be sure it will look favorably upon your company’s application for working capital.


You can also access long-term financing for certain purchases. For example, you can take out a five-year loan for purchasing production equipment or inventory.


You may also qualify for refinancing existing long-term debt and gain more flexibility on your payments while saving money on interest.

Hot Tip:

Taking care of your Credit Score will allow you to borrow a higher amount of money from different lenders.

Startup Business Loans No Collateral

Though difficult, especially with poor credit standing, you can still find lenders willing to take a chance on you and offer you a loan without collateral.


If you can’t find a lender that will finance your start-up business without collateral, consider these alternatives:


  • Home equity loan. You might be able to get a second mortgage or home equity line of credit (HELOC) from the bank where you keep your checking account. One advantage is that the interest is typically tax-deductible.
  • Bank overdraft. If you’ve already exhausted your line of credit and still need some extra cash for the business, consider getting overdraft protection from your bank. To set one up, just pay a fee to have the bank link your checking account with another account that has a higher balance (say, a savings account). If you overdraw from your checking account, the bank will automatically transfer money into it. If you don’t have enough in your savings, the bank will simply cover the difference—for a fee, of course.


This option helps you maintain a positive relationship with your bank and gives you quick access to capital without having to worry about paying a business loan back.


Just remember that your line of credit will be lowered by the amount you overdraft—so don’t go overboard!


Other options you might explore include gifts and donations from family and friends, and grants.

Personal loan guaranteed approval

Of course, there are also personal loans with guaranteed approval, and borrowers who seek this kind of credit would typically face no hassle in their application. Lenders of this loan type will allow you to borrow money regardless of your credit history or score and without collateral.


This is also called payday loans, fast cash, deferred deposits, low credit loans, or cash advances, and the standard range of the amount you can borrow is $350 to $1,500.

You can benefit from guaranteed personal loans if you happen to run short on a few cash and need to pay for something urgent.

Frequently Asked Questions (FAQ)

A small business startup loan is an initial source of capital that helps get you started in your new venture. The loan will cover costs such as equipment purchases, inventory, or even cash flow expenses while you’re developing your customer base.

Find a Suitable Loan Officer from Local Bank Get your Company Information ready such as Tax Returns, Financial Statements, etc. Take the Appraisal of your Business Plan, Prepare the Security Documents, Assign Directors if needed. Sign the Business Loan Agreement and finalize the formalities.

Using the tips listed above, you should be better prepared when approaching a bank about small business loans.  Be sure to present yourself and your company as well as possible.

Paying back the loan will depend on the terms of the loan. Usually, it ranges from 12 to 36 months. Depending on your repayment capacity, you may have to pay interest at a certain percentage of your remaining profit (or cash flow) or at the time of disbursement of the loan. Like any other business expense, this is tax-deductible, so subtract it from your income before you figure out your monthly profits.

Banks provide loans to cover most of these needs.

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