How to Get a Startup Business Loan

Many top lenders are hesitant to lend to startup businesses because of their lack of business history. This means that you must focus on improving your personal credit score and demonstrate your ability to repay debt if you want to qualify for the most competitive offers.

Evaluate the type of loan you need and research lenders to find one with rates, terms and application requirements that meet your needs. Gathering documentation ahead of time will expedite the process.

Features and Benefits

Startup business loans are designed for businesses that are new and in the early stages of development. Since startups don’t have a lengthy history of business financial statements, these loan options generally rely on the personal creditworthiness of the owner to determine eligibility and approval.

Many lenders will require a business plan, which can help explain the potential for future revenue and expenses. Lenders will also likely ask for banking information, such as a dedicated business bank account. They may also request a personal guarantee and/or a UCC lien on assets.

Depending on the lender, some startup business loan providers will accept startup businesses that have not yet been established for more than a year, as long as the company has regular, documented income and a solid debt-to-asset ratio. Additionally, there are startup business loan programs that cater to minority and/or underserved small-business owners or communities. These programs usually offer better terms than traditional private loans.

Documents Required

The documentation required to secure a startup business loan will vary by lender. It is best to research the application process for each of the lenders you are considering to determine what documents you will need to gather. Some lenders may require personal credit reports and tax returns, while others will use business financial statements. Additionally, some lenders offer specialized programs for certain types of startups or business segments. Finance Factory, for example, is an online marketplace that matches entrepreneurs with lenders that offer business loans for startups. It also has a streamlined application process and provides applicants with a funding range report and a personal contact.

A business plan, cash flow projections, and bank statements will help you to demonstrate your ability to repay the debt. You will also need to provide proof of your business’s legal registration, such as a certificate of incorporation or partnership agreement. It is also a good idea to have a backup plan in case you are rejected for financing.

Interest Rates

The rate that a business can borrow will vary depending on the loan type and lender. Some lenders have different requirements for borrowers including minimum credit score, monthly revenue and years in business while others have more lenient guidelines such as BlueVine, which only requires an EIN and minimal personal credit information to qualify.

It’s important to evaluate the available options before deciding on what type of financing is best for a startup. Alternative forms of funding like grants, microloans and crowdfunding may be better fits for startups that do not have a robust financial track record or want to avoid diluting equity in their company. Business lines of credit also work well for startups as they allow a set amount of capital to be borrowed and paid back over time. The yearly interest rate on these types of financing is generally much lower than a traditional loan.

Eligibility Criteria

While startup business loans have less strict requirements than other types of financing, they are not available for all borrowers. Lenders must determine whether your business is a good candidate for funding by evaluating its history and financial records, and it must also meet minimum requirements for time in business and revenue.

If you apply for a loan with an SBA lender, it may require additional documentation such as legal documents, copies of business licenses and franchise agreements, a statement of purpose and banking information. You should also have an updated business plan that includes a business forecast, details of your growth plans and an estimate of how you will use the loan funds.

Some lenders offer startup business lines of credit, which allow you to withdraw funds as needed up to a predetermined limit and pay interest only on the amount that is drawn. These types of financing are often a better option for startups than business loans because they don’t require lengthy application processes or extensive personal credit and financial statements.