Small Business Startup Loan
Find the Best Rates for Your Small Business Loan
Get connected with top lenders in a matter of seconds!
Things to Know About Small Business Startup Loans
- Brief Background
- Credit Score: The Importance
- Types of Small Business Startup Loans
- Advantages of Startup Loans
- Disadvantages of Startup Loans
If you’re considering starting a small business, one of the first things you will need to think about will be how you’ll get the money to do so. There are a range of different ways that you can try and get funding for your small business, but many business owners opt to use finance. It’s the easiest way to get capital if you don’t want to have to sell any of the equity in your company to investors. One of the best ways to get finance if you don’t already own a business is a small business startup loan. These loans are provided by a range of different lenders.
From the name itself, you probably already have an idea what a small business startup loan is all about. This is a loan product that comes in handy for businesses that are just starting out or haven’t even started. Little to no business history is required and this one is the easiest to get approval for if you have a stellar personal credit score. Do you have a brilliant idea for a business? Or you need a capital boost to keep your new business running? A small business startup loan is your best bet.
Here’s an interesting thing about a small business startup loan — interest rates can get as high as 7.9% to 19.9%; however, you can receive interest-free offers for the first 9 to 15 months. If loan terms last anywhere from 6 months to 4 years and you managed to turn the money you got from the loan into a revenue-earning product or service, then you will surely be enjoying the fruits of your labor very soon. Truth be told, this is one of the best, if not the best loan products you can get if you’re starting out a small business.
You must know though that you are not getting cold, hard cash from a small business startup loan. You will be receiving something like a high-limit credit card that you can use for a variety of business purposes. The most important qualification is for you to have an exceptionally high personal credit score.
The maximum loan amount for a small business startup loan is $150,000. You can receive funding within about two weeks. However, there are many instances when it takes a month up to 45 days to fully complete the process.
Are You Qualified to Get a Small Business Startup Loan?
Many of us dream about quitting our day jobs so we can become entrepreneurs and be our own bosses. However, making ends meet, putting food on the table and paying bills on time can already be quite a struggle. Saving up enough money to invest on a new business and to maintain it for the first few months or years can be extremely difficult.
Some of us would go on crowdfunding sites while others will still rely on the traditional and old-fashioned way of borrowing from family and friends. However, no matter how brilliant your idea might be and no matter how important keeping that business running is to you, the people around you won’t necessarily always feel the same way. Thankfully, you don’t need to convince lenders that your business is any good when you need a small business startup loan. You simply have to show that you have an exceptional personal credit score to prove that your worthy of getting the loan.
Of course, you also need to show personal identification such as your driver’s license, a business plan or an equipment quote among very few other documents. If you do plan on heading to a lender to apply for a loan, you should make sure to contact them before heading to their office – not bringing the right paperwork can have a serious impact on the timeline of your loan approval. If you’re in need of capital quick, it’s especially important to have everything in order prior to applying for finance.
Credit Score: The Importance
As mentioned previously, you will need to have an extremely good credit score if you are to get approved for a startup business loan. Because you will most likely not have any collateral, your personal credit score is the most effective way that a lender can judge if you will be a good borrower or not. This is why it is vital that you prepare your credit score for any applications you may have in the near future. If you do decide that you may open up a small business in the next year, you should immediately begin ensuring that credit score is as high as possible. Not only will a higher credit score improve your chances of attaining finance, it will also reduce the interest rate that you’re offered if you’re approved. It may seem counterintuitive, but banks will offer you more affordable finance if you have a better credit score.
So, what should you do to make sure that you score is in top shape? First, you should check your credit report. The three major reporting bodies are required to give you one free credit report per year, so make sure to contact them and ask for a report. You should check the report to make sure that nothing on the report is incorrect – you’d be surprised about how many untrue items end up on credit reports. If you do happen to find out that something is put there incorrectly, you can file a complaint with the reporting agency to have it removed. The last thing that you should do is pay down all the credit card debt that you may have, this is the quickest way to improve your credit score. The less of your credit limit that you’re using, the more your credit score will rise.
Why Are Startups So Unique?
Maybe you have a friend who opened a business and found it really easy to get a traditional bank loan to get funding. You may be wondering why you won’t have the same advantages as him. The answer really comes down to risk. Many business owners start businesses with little risk, or perhaps they’ve owned a successful business before. Lenders take all of this into account when they’re deciding who they lend money to. They don’t want to give a large sum of unsecured money to a business owner that has never owned a business, especially if that owner is entering a risky industry and has no hard assets.
Many business owners are able to get financing because they have hard assets that they’re putting into the business – for example, machinery, vehicles, or land. In this case, the bank has collateral that they can liquidate to help repay any money that is defaulted on. In addition, the business has inherent value because it has assets that are held within it. With many startups or new small businesses in modern times, the business is almost entirely an idea. Meaning that a group of individuals have come up with an idea but don’t have any hard assets or customer orders to justify value for the business. This is why a startup business loan is different than a regular business loan – it takes into account that you have a high chance of not being able to pay back your debt.
The 3 Types of Small Business Startup Loans
We already mentioned earlier that you’re not necessarily getting cash upfront if you get approved for a small business startup loan. Even if you have a sparkling credit score to be proud of, your business idea is still as good as nothing until your business is actually running and earning. Without your business history to show, lenders still need their own “back up plan” just in case. That’s still quite understandable, right?
So, if you’re interested in a small business startup loan, you must be aware that there are actually three sub-categories here. You can choose from these loan types by identifying first what best fits your purpose.
Startup Equipment Financing – This is exactly like traditional equipment financing except you don’t need all the other paperwork and higher qualifications required for longer-running businesses. You have to accept that your business is new and you have nothing to prove yet. Your lender lessens the risk of loss on his part by using that piece of equipment you are planning to purchase as your collateral. Most often, a credit score of 680 or higher is required for this loan. You simply need to present the vendor quote with a written explanation that states how you intend to use that equipment. It’s just a bonus that you can get tax benefit for several years with the depreciation of the equipment you loaned for.
Business Credit Cards – Much like your regular personal credit, but this time you will be using it for business. You can still get a maximum credit limit, set interest rates and in many cases you can even gain rewards, cash back or miles for your transactions. If you spend wisely, make timely payments and never use more than what’s allowed, you can even use this credit card to build your credit score.
Credit Line Builder – The credit line builder is not a common product but it is fast becoming more popular among startup entrepreneurs. It is not a business line of credit so you have to be very careful and use the allowable credit wisely. Basically, you’re getting several credit cards and the amount of the total credit limit from all these cards becomes your credit line builder. Note that it can be extremely challenging to qualify for this as most institutions only allow this loan to those with a 700+ personal credit score.
Advantages of Startup Loan
You probably have a pretty good idea of whether a startup loan is good for your business after reading this guide. But the best way to fully determine if it’s the right loan for you is to compare the various pros and cons to get a concise understanding of whether it’s valuable to you. A full list of the most prominent benefits associated with startup loans is provided below:
- Eligibility – Startup loan providers know that you don’t have a lot of business experience so they use other means to assess your eligibility. If you have a great personal credit score, this will go a long way in helping you get the money that you need.
- Interest Rates – Some of the interest rates on offer can be quite high, but for the type of finance you’re receiving, startup loans tend to be fairly affordable. This is especially true if you have collateral to secure the loan – the more secure your loan is, the lower the interest rate will be.
- Build Your Credit – The hardest thing about being a new business owner is the lack of business credit you will have. You’ll want to find ways to build your business credit score so you don’t have to worry about getting finance in the future. A startup business loan is one of the best ways to get your business on the credit score ladder.
- Plenty of Sources – In modern day America, you can choose from a wide array of lenders to get a startup business loan. There are plenty of lenders online, as well as traditional lenders that still offer this popular lending product.
Disadvantages of Startup Loan
Despite the many advantages associated with the startup loan business, there are also some major drawbacks. It is important to consider both when trying to make a decision on which one is best for you. The most prominent disadvantages associated with the startup loan market are provided below:
- Paperwork – You might not have all the documentation you need to be approved for a startup loan, and acquiring this documentation may take time. Sometimes it’s hard for small business owners to be approved for a loan until they have all the information they need, at which point it may be too late to get funding. Try and get all your documentation done early.
- Personal Guarantees – Some startup loans may ask for personal guarantees in order to secure the loan. This can be quite dangerous, especially if you’re working in an industry that is risky. You don’t want to put your family’s livelihood at risk.
- Cost – There can sometimes be additional costs involved in loans which can increase the total burden of the debt you’re taking on.
Who Provides Small Business Startup Loans?
In the past, if you wanted to start a small business you would typically head to a brick-and-mortar bank and apply for a loan. This is still one of the most popular ways that individuals apply for financing. But recent advances in technology have changed the small business startup loan landscape – there are now a range of different choices when it comes to small business financing.
Many traditional banks still offer the best interest rates on the market, but they also tend to have the toughest requirements when it comes to getting financing. You don’t want to risk having a hard inquiry on your credit score, so you should be realistic about whether you will be able to get the financing you need through a traditional brick-and-mortar bank. Another thing to consider is the considerably shorter timeframe associated with getting finance from an online lender. Online lenders allow you to upload paperwork to their servers and then make a quick decision which can get you capital much faster than a traditional lender.
Small Business Startup Loan vs. Selling Equity
After reading this page, you may be thinking that you don’t want to take on a startup loan. While this is a natural feeling, it’s best to compare it against some of your potential alternatives. What a lot of startup owners do to raise funds when they don’t want to take out a loan is sell equity in their company. By selling equity, you don’t have to take on any debt. The only downside is that you lose partial ownership of your company. This has various effects on your business as you won’t have full control over the direction of your company anymore. In addition, if you are successful, you will own less of the company down the road if you decide to cash out.
Still, selling equity is a serious alternative if you find that you can’t get any financing. This may be the reality for you if you have a company that has little collateral and is taking on a large amount of risk. This being said, we suggest that you look into a startup loan first as there is more flexibility in the long run when you have more control over your company and its direction.
Worth Your Effort and the Price You Have to Pay
If you’re a startup entrepreneur, you’re confident about your personal credit score and most importantly, you’re positively sure about the business you’re setting up, then a small business startup loan can be very beneficial to you.
You will most likely hear about others discouraging you. They will make you think that starting off your business with debt won’t be a good thing. However, if you don’t start building your dreams today, someone else might do it for them, and not for you.
It can take a lot of time, paperwork and effort, but once you are approved with a small business startup loan, you can begin seeing progress in the business you only used to dream about.
Don’t Waste It
One of the biggest mistakes that new business owners make is wasting the money that they get from their startup loan. Having a huge influx of capital is an exciting prospect for someone who is just starting a business, and using this capital in the wrong ways can have serious consequences. In the early stages of owning a business, efficiency should be the utmost priority in terms of the way that you use the limited capital you have. Every major purchase that you make should be analyzed to determine if it is the best possible use of the cash that you have.
For example, if you’re starting a business and you’re getting a startup loan that is specified to purchase a piece of equipment, you should be sure of two things. Firstly, you should be sure that you need this piece of equipment to make your business run more efficiently. Secondly, you should make sure that it is the most cost effective piece of equipment on the market. When you are starting a business you are time rich and cash poor – use your time wisely and thoroughly research every expense you make to ensure that you’re getting the most value for your dollar. Successful business owners don’t waste the limited capital they have, consider every purchase a serious investment.
If you’ve read this whole page you’re probably well aware of how startup business loans work. Once you decide if it’s the right type of lending product for your business, you should begin trying to find the right lender. If you think you’ve found a few suitable lenders, make a shortlist and begin researching them thoroughly. You need to make sure that all the lenders you choose to work with have great customer reviews online – never work with a lender that doesn’t have an online presence. The best way to know if a lender is ethical is to read testimonies from past clients. You may think this isn’t a big deal, but having a bad lender as a partner can make your experience a nightmare.
In addition, once you decide on a loan, make sure to ask your lender for a full breakdown of the costs. You don’t want to be sold an interest rate and then find out that there are hidden fees and charges. Asking for the full cost of the entire loan is normally the best way to compare the true value of the loan you’re getting. Make sure to get multiple quotes before deciding on who the best fit is. Feel free to try a business loan calculator as well.
General Small Business Startup Loan Questions
This section covers general questions about small business startup loans. Use this information to learn more about how small business startup loans work so you can handle more complex questions and answers.
How Can I Get Finance to Start a Business?
How Can I Get a Small Business Startup Loan?
How Can I Start My Own Business With No Money and Get Talent?
How Do I Get Money to Start a Business?
Are Business Loans Hard to Get?
How Can I Get a Startup Business Loan?
Can You Start a Business With No Money?
How Do I Start My Own Business from Scratch?
How Can I Start My Own Business With No Money?
Can You Get a Loan to Start a Business?
How to Get a Business Startup Loan?
How to Get a Startup Business Loan Without Collateral?
How Can I Start a Small Business?
How Do Business Startup Loans Work?
How Easy is It to Get a Startup Business Loan?
How to Get a Loan as a Startup LLC Business?
How to Obtain a Startup Small Business Loan Following a Chapter 13 Discharge?
How to Get High Business Loan for Startup?
How Long to Process a Small Business Loan for Startup?
What is a Startup Business Loan?
How Do You Get a Business Startup Loan With No Business History?
Up to How Much Can I Get a Startup Business Loan?
What is the Best Type of Startup Business Loan?
What is a Good Size Startup Loan for a Business?
How to Get a Startup Business Loan Before You have Sales?
What Kind of Loans Can You Get for a Business Startup?
Small Business Startup Loans and Credit Scores
Lots of people have questions about how credit scores relate to small business loans. This section answers your questions about this dynamic.
How Do I Get a Loan to Start a Business With Bad Credit?
Can You Get a Business Loan With Bad Credit?
Where Can I Get a Small Business Loan With Bad Credit?
Can I Get a Business Loan With a 500 Credit Score?
Can You Get a Small Business Loan With No Credit?
What Credit Score is Needed for a Small Business Loan?
How to Get a Startup Business Loan With Bad Credit?
How to Get a Startup Business Loan With Bad Credit and No Collateral?
How to Get a Startup Business Loan With 550 Credit Score and No Collateral?
What Credit Score Do Physicians Need for a Business Startup Loan?
How to Get a Startup Business Loan With Bad Personal Credit?
Where to Get Personal Loans with Bad Credit for People who Want to Startup a Home Base Business?
How to Get a Business Loan via Collateral for Startup when Personal Credit is Horrible?
How Can I Qualify for a Startup Business Loan With Bad Credit?
How to Get Startup Business Loans No Credit Check?
What Credit Score is Needed for a Startup Business Loan?
Source of Small Business Startup Loans
There are a lot of different places you can get a small business startup loan. This section answers your questions about these different sources.
What Banks Do Startup Business Loans?
Do Banks Give Loans to Start a Business?
Which Bank is Best for Business Loan?
How to Get a Bank Loan for a Business Startup?
What Banks Offer Small Business Startup Loans?
How to Get Startup Business Loan with No Bank Account?
How to Use Homes as Collateral for a Startup Business Loan?
Who will Give Startup Business Loans to Individuals who Want to be Wholesalers?
What are Companies who Specialize in Small Business Startup Loans?
Who are Lenders who Loan to Startup Business?
Where Do I Find Business Startup Cash When I Cannot Get a Traditional Loan?
What Banks Offer Small Business Startup Loans for Franchises?
Small Business Startup Loans for Specific Business Ideas
This section covers questions you might have about getting a loan for specific types of businesses.
How to Apply for a Startup Home Business Loan for Disabled?
What are Personal Loans for Senior Citizens who Want to Startup a Home-Based Business?
Where Can I Can Get a Loan for My Startup Real Estate Business?
Can I Get a Startup Business Loan When I Buy My Semi?
How to Get a Loan to Buy Land for Business Startup?
How to Get a Business Loan for a Startup Beauty Spot?
How to Get a Startup Small Business Loan With Bad Credit for Log Truck?
Small Business Startup Loan Requirements and Approval
This section covers all of the questions you have about small business loan requirements and approval. Use this to better understand what you’ll need to get your loan.
How Do I Qualify for a Business Loan?
What Documents are Needed for a Business Loan?
How to Apply for a Small Business Startup Loan?
What Do You Need for a Startup Business Loan?
How to Improve Your Chances of Getting a Startup Business Loan?
How to Get Approved for a Startup Business Loan?
Specific Small Business Startup Loan Amounts
Lots of people have done their research and know how much they need to get their business going. This section covers questions about specific business loan amounts.
How to Get 30,000 Dollars Loan for Startup Business Without Collateral?
What Would I Need to Get a 1.5 million Dollar Startup Business Loan?
How to Get a $200,000 Startup Business Loan?
How to Get a $250,000 Startup Business Loan?
How to Get 30k Loan Business Startup?
Who will Loan 150k to a Startup Amazon Business?
Government Small Business Startup Loans and Grants
The government is an extremely popular source of small business startup loans and grants. This section covers your questions about getting this helpful government financing for your business.
How Do I Get a Government Loan for a Small Business?
How Can I Get a Small Business Grant?
How to Get a VA Startup Business Loan?
How Does a VA Business Startup Loan Work?
Other Small Business Startup Loan Questions
There are a ton of questions that people have about starting a business and loans. This section covers the questions that don’t fit into our other categories. That means it’s a good place to check if you don’t see the answer to your question elsewhere.
How Big of a Loan Should I Get for a Startup Business?
How to Make a Business Plan for Startup Loan?
How Much are the Estimated Bank Fees on Startup Loan for a Business?
How Do I Record Business Startup Loan?
On Average, How Many Small Business Take Out a Loan for Startup?
How to Determine How Much I will Need for a Business Startup Loan?
How Do a Show a Loan on the Books for a Startup Business?
What is the Easiest Small Business Startup Loan to Acquire?
What is the Interest Rate on a Government Business Startup Loan?
What is the Average APR of a Business Startup Loans?
Did you find this article helpful?
Jason is a Senior Author for SBL. He has been working with small business owners like you for the past ten years. He graduated with an MBA and began a career as an independent financial consultant for small businesses in his state.