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Startup Business Loans: Where to Find Funding

If you’re like a lot of entrepreneurs, you’ve used your savings to get your new business up and running, and maybe you’ve borrowed from family and friends, too. You need to recruit staff, purchase furniture or appliances, update to the latest technology and pay for inventory. A business start-up loan is a feasible next step.

Funding the cash needs of your startup can be a challenge, but it’s not impossible once you understand what’s involved, the types of financing to look for and how to qualify. To help you find the best startup business loan options for your unique situation, this guide covers the essentials of financing a new company, including:

  • What is startup business financing?
  • Traditional business financing versus startup loans
  • The types of funding available for startups
  • Equity-backed funds — another option for startups
  • What do you need to qualify for a startup business loan?
  • What should you remember during the application process?
  • Can you get a startup business loan if you’re rebuilding or establishing credit?
  • What should you do before applying for a startup business loan?
  • How do you create a business plan for a startup loan application?
  • Why should you consider a startup business loan?
  • How much money does your startup need?
  • Tips for startup founders
  • Additional things to consider before requesting a startup business loan
  • FAQs about startup business loans

We’ll also take a closer look at each financing method and break down:

  • What documents you need
  • The credit profile you need
  • The amount of money you can get
  • How quickly you can access funding
  • The potential costs
  • How to pay back each financing option
  • Some pros and cons

What Is Startup Business Financing?

Startup business financing helps business owners launch or maintain a new business with funds for essentials, such as payroll and equipment. Because a new business is unlikely to get approved for traditional funding, you’ll need to get creative about finding sources of capital. You’ve probably seen TV shows where entrepreneurs pitch their business ideas to venture capitalists in the hope of exchanging some equity for needed funding. You may also be familiar with crowdfunding campaigns that have helped startups get the cash they need to develop or market a product.

But these methods aren’t the only ways to finance a fledgling business. Personal loans, credit cards and SBA loans are forms of startup business financing. You can choose one of these funding options or combine multiple financial solutions. Your approach may depend on your credit history, the amount of funding you need and your ability to repay the borrowed funds.

Traditional Business Financing Versus Startup Loans

Traditional business loans

Banks and other lenders offer a number of financing tools for established businesses, such as term loans, commercial mortgages and lines of credit. To minimize the risk of not getting the money they lend returned, many lenders expect established borrowers to demonstrate their lengthy time in business, a substantial cash flow, and personal and business credit scores within a specified range. In some cases, lenders also want collateral before they’re willing to approve a loan or other type of financing.

Learn the ins and outs of traditional business loans for startups before you apply:

What documents do you need?

Traditional business loans require standard identification documents, including your driver’s license and Social Security card. You may also need bank statements, which is one reason why some entrepreneurs apply at their current financial institution. Your bank may provide documents for you, which saves you time during the application process.

Your bank may also require personal tax returns or other documents that verify income, such as profit/loss ledgers. Expect to show something that proves you’re taking steps to launch your startup, such as a business license, employer identification number or business plan.

What credit profile do you need?

Often, lenders consider the percentage of the credit available, your debt-to-income ratio and payment history. These factors influence your interest rate and the amount a bank feels comfortable lending.

If your credit score falls somewhere in the 640 to 699 range, you’re in great shape, and applicants with a score that falls between 700 and 749 have a solid shot at approval. If your score is at least 750, congratulations — you’re an excellent candidate for a traditional business loan, and you’re likely to get approved.

The higher your credit score, the better, but you don’t need perfect credit for a traditional bank loan It’s possible to get approved with a score below 600, and Lendzi can help. Fill out an application to find the best funding option today.

How much cash is available?

Funds vary based on your income and creditworthiness. Depending on your financial history, you may receive a loan of up to $150,000 for your startup, possibly higher if you have a solid business plan.

How quickly can you access funding?

Disbursement of a traditional bank loan may take a few weeks, but in some instances, funding can be dispersed in a matter of hours, or sometimes up to a few months.

What are the costs?

Interest often falls between 4% to 8%, but your rate may be higher or lower depending on your credit history. There may also be an origination fee for your loan.

How are traditional bank loans paid back?

Traditional bank loans are term loans, so they’re typically divided into equal installments that get repaid every 30 days or so. This may take anywhere from a few years to more than a decade depending on your unique situation.

What are some pros and cons?

Traditional bank loans for startups often have low interest rates, and they help you establish or improve relationships with local bankers. This may come in handy if you need a business line of credit or other financial services in the future. However, approval isn’t guaranteed, and it can be tricky to get a bank loan if you have some blips on your credit report.

Startup loans

Compare an established company to a new business with a short track record, little or no credit history and limited cash flow and collateral, and it’s easy to see why lenders are leery of handing over cash for new business loans. There’s a much higher risk that an unproven startup will default on what they owe, so lenders often have a lengthy application process for new business owners. Don’t let this discourage you, though. It’s definitely possible to secure funds for your startup as long as you choose the right lender.

Take some time to familiarize yourself with lending solutions before you apply. Make sure you know what startup business loans require as far as credit and income go, whether you’ve been browsing international startup business loans or startup business loans for women with bad credit.

What documents do you need?

Startup loans typically require a driver’s license, Social Security card, bank statements and personal tax returns. You may also need proof of business ownership, an EIN and a well-written business plan showing why you’re a stable candidate.

What credit profile do you need?

Your chances of approval increase if you have excellent credit, which means your score is at least 700. However, many lenders still offer startup loans when applicants have a FICO score between 600 and 680. It’s also possible to get startup business loans with bad credit, such as a score in the mid 500s. It helps if you have a history of repaying debts on time and aren’t utilizing much of your available credit.

How much cash is available?

You may receive less than $50,000 or as much as $5 million. The amount you receive varies drastically based on the potential profit of your business, plus your income and credit history.

How quickly can you access funding?

Funds may take a while for disbursement, particularly if you get a government loan for startups. You may wait a couple months or half a year depending on the amount of funding you need, but some lenders are able to provide access to funds in a matter of hours.

What are the costs?

Interest rates vary depending on your credit history and the lender you choose. Government loans are often capped at just above 4%, but private lenders sometimes charge double-digit interest rates.

How are startup loans paid back?

Startup loans are often term loans, which means they’re repaid on a set schedule similar to a traditional bank loan. Depending on your unique situation, you can expect to make a set payment once a month if you have a startup loan for your business.

What are some pros and cons?

Startup loans help bring your business to life, but sometimes they’re difficult to get when compared with other business loans. It’s important to show why you’re a responsible applicant so you can increase your chances of approval.

Three Funding Alternatives for Startups

When you’re looking for alternate access to cash to get your startup further off the ground, you can expect to use your personal credit and even your previous work experience to qualify. How much you can borrow and what’s needed to qualify depends on the type of small business startup financing you apply for, so let’s look at what applying for personal loans, credit cards and SBA loans can involve.

Personal Loans

Using a personal loan to give your startup a financial boost can be a good option if your business doesn’t have an established history and you’ve got a solid personal credit score and decent income. Many personal loans are unsecured, which means you won’t need a guarantee or collateral like you probably would with a small business startup loan. With most personal loans, you also won’t need to include a business plan or financial projections with your application. If you have to state your purpose for the funds, your lender may want more details about your startup.

Here are some other key details about applying for a personal loan for your new business:

What documents do you need?

You’ll need to provide your driver’s license, credit score, bank statements, personal tax returns and/or proof of income. If you apply for a personal loan for your startup, a lender may also want to see proof of business ownership as well as a voided business check, bank statements and any previously filed company tax returns.

What credit profile do you need?

Some lenders approve borrowers with scores as low as 525, while others require a minimum of 600 to 680 or higher. Lenders also look at what percentage of available credit you’re using, your debt-to-income ratio and if you have a history of paying bills on time. In general, a high score and healthy credit may qualify you for a lower interest rate and higher loan amount.

How much cash is available?

The amount of money you can get with a personal loan spans a wide range. You may qualify for a new loan of $1,000 to $300,000 depending on your income, creditworthiness and ability to make monthly payments.

How quickly can you access funding?

Loan approval and how fast the funds are deposited into your bank account varies depending on the lender and the amount you’re asking to borrow. With some online lenders, it can take as little as one business day to get approved and have the funds deposited. Others can take a week or longer, and you may have to wait up to 30 days before you get the funds you need through a bank or other brick-and-mortar lender.

What are the costs?

The interest and other costs you pay for a personal loan can vary a lot depending on your creditworthiness and income. You may get charged a fixed interest rate anywhere from 6% to 26%. Some lenders also tack on origination fees ranging from 1% to 6% of the loan amount.

How are personal loans paid back?

The amount borrowed along with the interest is added and divided into equal monthly payments over a fixed period of time. The repayment period can range from just three months to up to five years, depending on the amount of the loan.

What are some pros and cons?

A personal loan is easy to apply for, and some can be approved and funded within just one day. It may not require collateral or a guarantee, so applying may get you the cash your business needs quickly and without headaches or hassles. On the downside, taking out a personal loan isn’t going to help establish credit history in your company name, and it does leave you on the hook if your venture isn’t a success.

Business Credit Cards

Business credit cards aren’t just for large corporations with multiple revenue streams and big budgets. As a business owner, you can apply for a card in your company name, even if it’s a brand-new startup. A business credit card can give your startup more buying power and make it easier to keep business and personal expenses separate. Having a dedicated card for your startup can also help you build a company credit profile so you can qualify for other types of financing down the road.

You may find that getting a company credit card is a lot easier than getting approved for a business loan. Rather than applying for several credit cards and risking multiple hard inquiry hits to your credit score, it’s wise to do your research and only apply for one card that matches your needs. If you’re looking for short-term startup financing, aim for one that offers a 0% introductory APR for six months or a year and as high of a credit limit as possible.

Here are answers to some common questions about applying for a business credit card:

What documents do you need?

You’ll need to fill out a credit card application with the legal name of your business, your company’s EIN, length of time in business, number of employees and an average monthly expenditure. You’ll also have to include personal details, such as your Social Security number. If your startup has little or no earnings yet, you’ll also need to include your personal income.

What credit profile do you need?

You can qualify for certain cards with a credit score between 600 and 700. A score above 749 is ideal to make approval easier and help you get a lower interest rate and higher credit limit. Credit card companies also factor in whether you use more than 30% of your available credit, make payments on time, or have had credit problems in the past, such as bankruptcies.

How much cash is available?

Credit limits for business cards can range from $5,000 to $20,000 or more. The amount you get approved for depends on the type of card you choose, your personal and business income and your credit history.

How quickly can you access funding?

Some card issuers approve applications instantly, while you may have to wait seven to 10 days to get a credit decision by mail from others. It can take another seven to 14 days to receive a new card in the mail once you’re approved.

What are the costs?

Business credit cards can have a variable interest rate from 14.49% to 24.49%. New accounts are usually hit with the highest rates. Some credit card companies also charge an annual fee just to use their card, which can range from a reasonable $25 to a whopping $500, depending on the card and its perks. Other common costs include fees to make balance transfers and get cash advances. There are also late payment, over-the-limit and returned payment fees.

How are business credit cards paid?

You’ll get a statement each month from your card issuer that lists all the purchases made during the billing cycle, a balance that’s due by the date listed and a minimum payment amount. If you pay only the minimum amount by the due date, you’ll be charged interest on the balance beginning the next day. If you pay the balance in full each month, you won’t owe any interest.

What are some pros and cons?

Applying for a credit card in your business name and using it wisely can help you quickly build a commercial credit history, which can pave the way for greater borrowing power as your business grows. However, if you don’t make payments on time or get caught in a cycle of paying high interest charges, you could end up with long-term business credit problems that downgrade your personal score, too.

Small Business Administration Loans

The Small Business Administration has several loan programs that enable small businesses to borrow up to $5.5 million for certain purposes, but most require a minimum time in operation and have revenue and credit criteria. However, there are two SBA-backed loans available to help new startups with less than two years of business history — the Microloan and Community Advantage programs.

These SBA startup loans can be used for a number of purposes but also have some restrictions. For instance, Community Advantage loans are only available to businesses in underserved areas, and Microloans are only offered through nonprofit or community-based organizations.

Additionally, there may be specific requirements for applicants, such as providing a personal guarantee or collateral or having a cosigner. Thoroughly checking and comparing the details of these two programs can help you decide which one suits the size and needs of your startup.

Here are some details to consider about the Microloan and Community Advantage loan processes:

What documents do you need?

Along with various completed SBA forms, you’ll need to provide your driver’s license, Social Security number and bank statements. Your resume, three years of personal tax returns, a personal financial statement and proof of a down payment of 10% to 20% are also expected. You should have a business plan that details your industry experience and includes two years of sales, expenses and profitability projections. Note that if you plan to buy equipment with the borrowed money, you’ll need a quote showing the expected cost.

What credit profile do you need?

There isn’t a set minimum credit score needed to get approved for the Community Advantage or Microloan programs. Although a credit score as low as 575 may not get you turned down, some lenders do want borrowers to have a minimum score, and most look for a history of paying back debt responsibly, paying taxes and no previous bankruptcies.

How much cash is available?

Microloans are limited to a maximum of $50,000, while Community Advantage loans are available from $50,000 up to $250,000.

How quickly can you access funding?

The length of time it takes to process an SBA application depends on the type of loan and the lender. You may have the funds in hand in just two or three weeks, or it may take two or three months.

What are the costs?

The interest rate is usually prime plus a percentage. The combined rate can range from 7% to 9% for Community Advantage loans and 8% to 13% for Microloans. Other costs typically include application and loan processing fees and closing costs of 2% to 5% of the amount you borrow.

How are SBA startup business loans paid back?

These loans are paid back in equal monthly installments over a set length of time based on how much you borrow and the purpose of the loan. For Microloans, the maximum term is six years. For Community Advantage loans, the repayment period ranges from seven to 25 years.

What are some pros and cons?

A big advantage of SBA loan programs is that they can give you access to financing for your startup, even if you have less-than-perfect credit and getting money elsewhere seems hopeless. The fees charged are in line with those you’d pay to other lenders, and you’ll get a reasonable, fixed interest rate, too. Two major drawbacks are the in-depth application and extremely long approval process that can leave you waiting weeks or months for business funding.

Equity-Backed Funds — Another Option for Startups

If you’ve ever seen Shark Tank, then you have an idea of how angel investors operate. On the show, ambitious entrepreneurs pitch their ideas to a captive audience of investors, then accept a funding offer from the one they like best. This benefits business owners, and it also helps investors. That’s because investors receive a portion of sales or a stake in the company when they back an entrepreneur.

This option works well if you’re okay with not owning 100% of your company, but some entrepreneurs prefer to retain ownership. “Your equity is your future wealth. Do not give it away too freely,” warns Vishen Lakhiani, founder and CEO of Mindvalley.

Watch out for venture capitalist firms if you want full ownership, as you may otherwise unknowingly trade shares of your company in exchange for a business loan. The difference between angel investors and venture capitalist firms is that angel investors use their own income for investments, where venture capitalists use borrowed funds.

Royalty financing is another funding option for business owners, though it often works better for established entrepreneurs than fledgling startups. With royalty financing, also called revenue-based financing, you must provide a portion of future sales in exchange for funds. Lenders often prefer to work with companies that are already making a profit because this helps ensure that investors will receive royalties.

What Do You Need for a Startup Business Loan?

Personal loans, credit cards and SBA loans are three good options for getting the cash you need to grow your new business. You may be able to use one or more to take your startup to the next level of success. With any kind of business credit, it’s key to understand all the details before you apply so you can use those borrowed funds to your best advantage.

Depending on which funding method you choose, you may need the following documents for your application:

  • Three years of personal tax returns
  • Bank statements
  • Profit/loss statements
  • Personal financial statement
  • Business plan
  • Your business EIN
  • Licensing information
  • Personal identification, including your driver’s license and Social Security card

Your lender may require additional documents. Review the application guidelines closely as they can significantly impact your odds of approval. Failing to provide a requested document may result in a funding delay or even a rejection. Luckily, it’s easy to avoid this potential pitfall by reviewing lending requirements closely. Consider making a checklist for your application process so you can mark off each document as you gather it.

Begin gathering documents before you start the loan process in case you experience delays. Print out online banking statements or request hard copies from your financial institution, and obtain copies of your federal income taxes. If you cannot locate at least three previous years of income tax returns, you can request account transcripts at IRS.gov. Some transcripts are available immediately after you confirm your identity using account numbers from a mortgage loan, credit card or auto loan. If you’re unable to verify your identity online, you must wait for the Internal Revenue Service to send you paper copies of your transcripts.

What Should You Remember During the Application Process?

A single application error can result in a rejection, so it’s wise to double check your information before submitting a loan request. Start by reviewing the basics, such as your name and address. Is your company’s name spelled correctly, and do you have the correct address? When you apply for a startup business loan, you may need to use your personal address if you haven’t already selected a spot for your business.

Make sure your information is legible. Print clearly in blue or black ink if you’re completing an application by hand. If you’re printing forms from your computer, make sure the ink doesn’t smear or smudge. Use crisp, wrinkle-free sheets of paper, as creases may make it difficult to read your information. Only print information on the front of each page rather than using double-sided documents, unless a lender specifically okays this approach, otherwise, information may get overlooked during the approval process.

Don’t omit requested information when you apply for a startup business loan. If you’re missing a document, wait until you have it. You can ask the lender whether they can request documents directly from the appropriate institutions, but typically, lenders expect you to do the legwork.

Can You Get a Startup Business Loan If You’re Rebuilding or Establishing Credit?

A stable credit history helps improve your chances of receiving a “congratulations, you’re approved” response to your loan application. However, it’s not a requirement for every lender. Obtaining startup loans with poor credit is a possibility for many borrowers, so stay positive during the application process. You can also get startup business loans with no credit from some lenders.

There are different ways to get approved for startup funding if you’re currently working on revamping your credit score. Some applicants offer collateral, such as boats, automobiles or even their home. If you don’t want a collateral-backed loan, consider asking a trusted family member or friend to cosign your application. You may also benefit from working with an angel investor who funds startups in exchange for company shares or a percentage of your annual profit.

Startup business loans with no collateral sometimes carry higher interest rates than collateral-backed funds, so keep that in mind when you apply. Some potential business owners prefer to boost their credit profile before requesting funding. If you decide to go this route, start by cleaning up your personal credit history first, as your business credit score might be unavailable. You can establish a business credit score by opening business accounts with companies that report to credit bureaus. A credit card is a popular option for entrepreneurs who have no business credit yet.

Learn what lenders look for during the application process if you’re working on boosting your credit score. Your credit score is a triple-digit number that gives creditors a quick summary of your financial habits. The higher your score, the lower the risk lenders face when offering you funds for your startup. High risk startup business loans are available, but they often have high interest rates and lower borrowing limits than other loans. For that reason, many entrepreneurs address blemishes on their credit report before requesting funds for their startups.

You can improve your credit score by implementing these six tips:

  1. Don’t flake on due dates

When a bill is due, don’t pay it after the due date, even if you’re only a day or two late. A payment that’s one day late impacts your credit score just as much as a payment that’s 29 days late. That’s because many creditors don’t report the exact date you make a payment; they just mention whether you’re on time or 30, 60, 90 or 120+ days late.

If you can’t make a due date, contact the creditor before you miss a payment. Some companies offer flexible payment options, so you may have the option to change your due date or decrease your minimum monthly payment.

  1. Pay off debts

Some people ignore debts once they go to collections because they figure their credit is already damaged. However, you can help reverse some of the damage by paying off debts on your credit report, even if they’ve been purchased by collection agencies. There are different ways to approach this. Some people prefer the snowball method, which is where you pay off the smallest debts first and then work your way up to the bigger ones. Other people find it more satisfying to knock out their largest debt first.

In the long run, both methods are helpful when it comes to your credit score. Pick a method and stick with it until your debts are current.

  1. Report on-time payments

Get a copy of your credit report and make sure it shows all of your accounts, especially the ones in good standing. Some creditors don’t report to credit bureaus, so your credit score may not provide an accurate picture of your financial habits. Contact companies who don’t report payments and ask if they can start. If they say no, look into reporting your own payment history for rent or utilities via a product, such as Experian Boost.

  1. Dispute inaccurate information on your credit report

Got an account that doesn’t look familiar? Maybe that’s because it doesn’t belong to you. Dispute any information that seems inaccurate, whether it’s an account you never owned or a bill that you paid off years ago. You can do this online or by sending a letter via postal mail to the three major credit bureaus.

  1. Go easy on new credit inquiries

When you apply for a startup loan or other sources of credit, many companies perform a credit check. A soft pull doesn’t impact your score, but a hard pull causes a decrease in your FICO score. It can take several years before hard pulls disappear from your credit report, but sometimes companies are willing to remove them for you.

Be careful not to apply for too much credit at once. This makes lenders nervous because they fear you may need funds badly. Lenders want to feel like you can conduct your business just fine without their assistance even though you’re requesting financial help.

  1. Don’t close old accounts

Keep credit cards open, even if you don’t use them anymore. This helps improve your credit utilization ratio so it appears that you’re using less available credit. Lenders like this because it shows you aren’t desperate for credit.

After following these tips, check your credit score again. Many lenders provide information about their preferred FICO score ranges, so you can see if you might qualify without completing an application.

What Should You Do Before Applying for a Startup Business Loan?

Applying for a startup business loan isn’t a quick process, but you can speed things up by preparing in advance. Before you submit an application for a startup business loan, do these five things:

  1. Create a business plan

Nearly every lender you encounter is going to request a business plan. That’s because you’re a startup company, so lenders can’t just glance at your profit history before making a decision.

Your business plan should include information about every aspect of your business, from goals to expenses. Be honest with your proposal and mention any potential hurdles, such as competitors offering similar products or services. Make sure you have a plan for how you can overcome these obstacles and run a thriving business. Don’t forget an executive summary that outlines your key points so lenders can quickly skim your information before delving deeper into your data.

  1. Review your credit history

Is it the right time for a startup business loan, or should you give your credit report some TLC first? Consider postponing your loan request if your FICO score is below 600 or you have a recent history of late payments on your credit report. You may also want to hold off on your application if you have a high credit utilization ratio or multiple maxed-out credit cards. No matter what your credit history, Lendzi is here to help. Fill out an application to find out how your lending needs can be met regardless of your credit score.

  1. Gather your financial documents

It takes a while to collect financial documents, especially if you don’t have digital copies. Take some time to get commonly requested documents, such as tax returns and bank statements, if you don’t already have them. Keep in mind, some lenders may want certified or notarized copies, which means you can’t just submit documents you print from your computer.

  1. Establish clear goals for your startup

Why do you want a loan or line of credit for your startup? If you aren’t sure, work on identifying your business goals before you request funds. You need clearly defined goals, such as “I’d like to make a $100,000 annual profit within 3 years,” not goals like, “I want to make lots of money.”

After you establish your goals, figure out what you need to achieve them. You may need equipment, help with payroll for employees or funds for marketing. Startup business loans can help with all of these things.

  1. Determine what type of loan you can afford

A loan isn’t free money, so it’s vital you create a solid repayment plan before you commit to borrowing funds. Figure out exactly how much you can handle repaying each month without dipping into your profits, then choose a loan that meets your needs. Lendzi can help you analyze interest rates and other repayment terms so you make an informed decision.

How Do You Create a Business Plan for a Startup Loan Application?

Many new business owners are unsure how to draft a business plan for their loan application. It’s a vital part of the application process, so we’ve compiled some helpful tips:

  1. Create a specific objective

This is your chance to explain exactly what your company offers. A strong objective is clear, not vague. Use specific phrases, such as “I plan to sell face masks and latex gloves to pediatric hospitals,” not “I’m going to sell stuff to medical workers.”

Your objective belongs in your executive summary. The executive summary is basically like the objective in a resume; it gives interested parties an opportunity to evaluate your intentions quickly.

  1. Identify your market and competition

You may have already done this in your executive summary, but you can provide more details in your business plan. Explain who will buy your products or services and how your company can benefit them.

Narrow it down as much as possible. If you think a certain demographic will buy your product, mention that. If you have a product that appeals to a larger demographic, such as adults aged 18 to 49, explain why. Include information about ethnicity, demographics and behavioral trends as well so lenders fully understand your target market.

Research competitors who offer similar services or goods. Why should shoppers choose your company instead? Lenders need to know that you have the potential to earn a profit from your business ventures.

  1. Define your company’s structure

This is where you identify the leaders of your company. You’re the company’s founder, but do you also plan to manage daily operations? If so, mention that. If not, describe who you plan to hire to fulfill these duties.

You should also explain other positions required to help your business run successfully, such as cashiers, warehouse workers, receptionists or marketing reps. Your startup funds help cover their salaries, so don’t leave out any positions in your organization.

  1. Describe your goods and services

Let lenders know everything you plan to offer, whether you’re opening a pet salon for fluffy kittens or launching a digital storefront for plus-sized women. It’s also important to mention copyrights and patents so lenders know you’re protecting your ideas. Include information about research or development here, too.

  1. Describe your marketing strategy

How will you attract customers? Do you have a plan for advertising campaigns? Let lenders know where you plan to advertise, whether you’ve got TV slots scheduled or you want to focus on banners online. Describe the sales process from start to finish, including how you plan to retain customers once you’ve attracted them.

  1. Detail your funding requirements

Explain why you need money and what you plan to do with it. Focus on the next five years, not just the immediate future. Describe your anticipated expenses, including equipment, utilities, payroll and inventory. You should also explain how you’ll cope with unexpected setbacks, such as theft or vandalism.

  1. Estimate earnings

Calculate how much you plan to spend on supplies and labor, then determine your profit. Lenders need reassurance that your startup has the chance to become profitable, so don’t leave out any information.

Why Should You Consider a Startup Business Loan?

A startup loan helps you launch a business that otherwise may have never made it beyond being a dream on your goal list. Founding a business often requires a hefty investment, and you can’t launch your company until you have enough money for initial expenses. This may include:

  • Inventory if you’re selling physical goods
  • Equipment to manufacture, track or maintain your goods
  • Equipment for other business functions, such as answering phones or inputting digital data
  • Funds for payroll and employee benefit programs
  • Rent and utilities for your building

These expenses can quickly drain your savings account, which is why many entrepreneurs rely on startup business loans. These funds protect your personal accounts by giving you the capital you need to run your new business. This is important because many business owners initially struggle with separating personal income from business expenses. A startup business loan makes it easy to identify exactly how much you spend on business expenses, which is helpful when tax time rolls around.

Business owners also like that a startup loan helps boost their business credit report. As your business grows, you may need additional funding to keep things running smoothly. These funds may appear on your business credit report, which helps establish a history of responsible credit usage. This increases your chances of getting additional funds in the future because lenders see you’re a low-risk borrower.

Ownership retention is another benefit of obtaining a startup loan. Some entrepreneurs are uncomfortable working with angel investors because they don’t want to give away shares of their company or commit to a long-term repayment plan based on annual profits. You can choose a loan that meets your needs without sacrificing any equity. Fill out a Lendzi application now – we’re here to help.

A startup business loan also helps alleviate money-related worries so you can focus on your ultimate goal — running a successful business. It’s difficult to manage your company if you’re constantly worried about covering payroll or keeping up with inventory. When you request a startup loan, you have more time to focus on employee retention and customer satisfaction. This helps you develop a stable, trustworthy business for years to come.

How Much Money Does Your Startup Need?

You may need less than $10,000 or more than $100,000 to start your company. The initial amount varies widely depending on the size, location and type of business.

Odds are high that you’re launching a small business, as less than 1% of U.S. businesses are classified as medium or large businesses. You may have fewer upfront expenses as a small business, but you still need to figure out how you’re going to cover the following costs:

  • Rent or mortgage
  • Gas, electric, water, sewer and trash
  • Internet and website maintenance
  • Payroll costs, including funds disbursed to workers and the cost of printing checks, maintaining payroll software or hiring workers to help with payroll duties
  • Equipment costs
  • Inventory expenses
  • Licenses and certificates

These are just a handful of the expenses you may incur as a business owner. You might also need money for taxes, company vehicles, marketing, customer loyalty programs and employee awards.

If you’re founding a large company rather than a small business, consider the cost of maintaining multiple locations or a large team of employees. It’s likely you will need a significantly larger loan for startup costs than an entrepreneur who’s launching a small business.

Consider long-term expenses, not just your initial costs, when you apply for a loan. You may need help with rent and utilities for a full year or two, not just the initial launch of your startup. You may also need help covering payroll and other business expenses for some time. Create a detailed list of all your anticipated expenses, and then factor in the cost of unexpected issues, such as faulty equipment, damage from severe weather or theft. Business insurance helps address some of these issues, but you might have a deductible before payments kick in after an incident.

Tips for Startup Founders

Money plays an essential role in starting and maintaining a business, but it’s not the only factor that matters. You want your employees to be happy, and you also want customers to respect and trust your company. It’s also important that you value your company and feel good about how it’s progressing.

“It’s extremely rewarding to know that we’re able to fulfill the mission we started the company for,” says Tan Hooi Ling, cofounder of Grab, a ride-hailing company in Singapore. His sentiment reflects the thoughts of many entrepreneurs who understand the importance of achieving company goals.

Whether you’re a seasoned entrepreneur or new to the startup scene, here are 10 helpful tips to remember:

  1. Companies offer solutions

Forget about your inventory for a minute and put yourself in your customers’ shoes. They visit your company, either online or at a brick-and-mortar location, because they want solutions to their problems. This is true whether you sell goods or services, and Drift CEO David Cancel understands this.

“Selling has become much more about truly understanding a customer’s problems and needs,” Cancel explains, highlighting the importance of providing solutions for consumers. Dribble cofounder Rich Thornett agrees, stating that business owners should “Solve a real problem that creates real value in the world.”

When you market your products, focus on how they benefit your consumers. Mention how they make bedtime easier, relieve pain or eliminate dinnertime arguments. Your customers want to live happy, stress-free lives, and they’re counting on you to help.

  1. Become an expert in your industry

Why should customers choose your products or services over another company’s? If you don’t have a solid answer, focus on strengthening your industry expertise. Pretend you’re working the helpline for your company. Do you know the answer to your callers’ questions, or do you have to get an employee to help you explain how your own company works?

Understanding how your company operates helps you establish credibility with customers. It also strengthens relationships with employees because they feel like you care about the company enough to learn the ropes.

  1. Hire the right team for your mission

Customers want a pleasant shopping experience, and that goes beyond hiring employees who are friendly. Shoppers also want knowledgeable workers, but it’s easy to skimp on training if you’re short on funds. Requesting startup business loans helps keep your business running smoothly with efficient, well-trained employees.

  1. Create a sustainable business

You need something that makes you stand out among your competition. “You have a viable business only if your product is either better or cheaper than the alternatives. If it’s not one or the other, you might make some money at first, but it’s not a sustainable business,” says Jim Koch, founder of Samuel Adams. Twitter founder Jack Dorsey echoes Koch’s sentiments, stating, “It’s more important to have an idea best than have it first. There is always room for disruption.”

Don’t worry if you create something that’s already on the market. Just find a way to make it better than your competitors’ products.

  1. Don’t just listen to your fans

It feels good to hear praise from family members and friends when you start a business, but you also need feedback from neutral parties. “Don’t drink your own Kool-Aid,” warns Mark Suster, founder of Upfront Ventures. “There is a hype curve in any company. Press, journalists, analysts, friends and family can reinforce the sense that you’re killing it. As Public Enemy says, don’t believe the hype. The only way to build a sustainable customer is to listen to customers, partners, suppliers and employees.”

You can collect feedback from these parties by providing anonymous surveys via email or text and placing locked suggestion boxes throughout your company. Don’t place a suggestion box in your office or the workspace of a supervisor or HR manager, as this may deter workers from offering honest feedback. It’s important to learn how people truly feel about your business so you can grow as a leader and meet the needs of everyone involved with your company.

  1. Make changes as needed

Don’t stick with a procedure or inventory selection just because you or your team are used to doing things a certain way. Sometimes changes are necessary to help your business thrive. Dan Norris, founder of 7 Day Startup, agrees. “If it’s not working, be honest with yourself and try something different,” he recommends.

That doesn’t mean you should overhaul your approach at the slightest sign of failure, though. Give things time to work, but move on if results do not improve.

  1. Believe in yourself

Founding a company is exciting, but it also triggers some anxiety. Have faith that you’re the perfect person to run your company, whether you’re managing a hot dog stand or selling custom-designed purses. Many people dream of starting their own business, but you actually did it. That’s impressive, so keep putting your best effort into managing your new business.

  1. Learn from your mistakes

Don’t let fear of failure derail your goals. Mistakes are part of the startup process, and they show that you’re taking risks rather than living life on autopilot.

“Don’t be afraid to fail. My dad encouraged us to fail. Growing up, he would ask us what we failed at that week. If we didn’t have something, he would be disappointed. It changed my mindset at an early age that failure is not the outcome, failure is not trying,” says Spanx founder Sara Blakely.

Janine Allis, Boost Juice founder, reminds entrepreneurs that it’s important to take risks, even if they may fail. “In business you need to be courageous, don’t be that person who was too afraid to jump off the entrepreneurial cliff,” she states.

  1. Be frugal, not cheap

Create a budget and stick to it, but not at the cost of your employees’ or customers’ comfort. Sure, you may save money if you switch from two-ply to one-ply toilet paper in the bathroom, but does that show you value the well-being of others? Take care of the people who help you achieve your goals. Pay your employees fairly, and show customers you appreciate them.

If you notice you’re struggling financially, seek help from the Lendzi team. We can help you determine whether you need a new loan or help you make the most of your current one.

  1. Expand your vision

As your company grows, so should your goals. Use funds from startup business loans to develop your business as demand increases for your goods or services. This may mean securing additional locations, hiring more employees, buying extra inventory or upgrading your equipment to meet the needs of your growing business.

Additional Things to Consider Before Requesting a Startup Business Loan

Startup business loans have numerous benefits for new business owners, but as with other financial products, they have some potential drawbacks. Here are some possible disadvantages or difficulties you may experience when requesting a startup business loan:

  1. Business loans restrict your company’s cash flow

As a new business owner, you may not realize how your loan payments impact your income. A startup loan provides essential funds for your business, but if you borrow more than you can afford, you may struggle to grow. Loan payments use funds that you could have used for other expenses, such as hiring new employees or expanding your business. However, if you request enough funding when you initially apply for a startup loan, your business should be just fine.

It’s tricky to determine how much you need for a startup loan, especially since you may not have been in business long enough to pinpoint your company’s sales trends. The Lendzi team works with new business owners to address these potential issues so you can make educated choices when requesting a business loan.

  1. A business loan can impact your personal credit score

Business loans help establish a credit history for your company, but they may also impact your personal FICO score. Make sure you keep up with payments, as failing to do so may impact your personal life just as much as your business. You may find it hard to get a mortgage, buy an automobile or get approved for credit cards if you fall behind on your business loan.

It’s also worth noting that a business loan impacts your credit utilization ratio even if you’re current on payments. Keep this in mind before you request other lines of credit, even for personal use, as these may significantly increase your credit utilization ratio.

  1. You may need collateral for approval

Lending money to a startup is risky because lenders don’t know what to expect from your new business. As a result, lenders may request that you provide collateral before receiving a loan disbursement. Some borrowers prefer to get a loan that isn’t backed by collateral, but they may need a cosigner to get approved.

  1. Instant approval isn’t available

It takes weeks, sometimes even months, before lenders approve startup founders for funding. This can be disappointing if you want immediate funding, but remember, this wait time is normal. Lenders need time to thoroughly review your application so they can make sure their loan offer benefits your business. You can get quick funding via factoring or a merchant cash advance, but these options aren’t always available for new business owners.

  1. You may not understand what to do with your funds

New business owners aren’t always sure how to utilize their startup loans. That’s why you should create a detailed budget and plan of action before you apply. Otherwise, you may end up buying things your business doesn’t really need or overspend on supplies.

There are also many advantages associated with startup loans, including these five benefits.

  1. A startup business loan eliminates the need for funding from loved ones

No matter how supportive friends and family are regarding your business goals, you may feel uncomfortable asking for a loan. Some people hate sharing the exact monetary figure they need with loved ones, while others dislike feeling indebted to those they have a personal relationship with. You can bypass this discomfort by applying for a startup business loan from a financial institution rather than someone you know on a personal level.

  1. Funding helps provide a strong start

Some new businesses do a little at a time. They might buy equipment one month, then add new flooring the next. They do this as funds become available from their own savings.

There’s nothing wrong with this approach if you’re okay with waiting for your business to launch, but many entrepreneurs are excited to unleash their goals. Startup business loans let you get started in just a couple of months rather than establishing your business bit by bit over a lengthy period of time.

  1. Startup business loans establish business credit

Many business owners rely on loans, credit cards and working capital for their companies even after they become seasoned entrepreneurs. However, it’s difficult to obtain certain types of funding if you don’t have a business credit history. A startup loan appears on your business credit report, so you can build your business credit score while boosting your business. Over time, this helps improve your chances of receiving approvals for other types of business funding.

  1. Startup funds provide a financial cushion

Startup business loans create a financial cushion for your company unless you borrow the exact amount you need. If unexpected expenses arise, you can easily cover them with your loan instead of scrambling to gather extra funds. This provides peace of mind during stressful times so you can focus on pushing forward.

  1. Startup funds cover any business expenses

Some lenders have specific requirements for startup business loans, but generally, you can use your loan for anything your company needs. This includes a brick-and-mortar location, a digital storefront, equipment, marketing and payroll. You have the freedom to use your funds as you see fit while you work on advancing your business.

FAQs About Startup Business Loans

You may have questions about startup business loans before you apply, and that’s okay. We’ve got answers!

How old do you have to be to request a startup business loan?

Typically, applicants must be at least 18 years old.

Where do you apply for a startup business loan?

You can obtain a startup business loan by applying online, visiting a brick-and-mortar financial institution or requesting a paper application over the phone. If you already have a business bank account, start by asking your financial institution about options for new business owners.

What documents do you need to apply for a startup loan?

The documents vary based on your lender’s preferences, but you typically need a driver’s license and Social Security card for most loans. You should also expect to provide tax returns and bank statements verifying your income as well as a business plan. Your business plan should detail how you plan to develop your business with the borrowed funds.

What should I do if I don’t have all the documents a lender wants?

Don’t submit your application until you have everything you need. The lender may reject your application if it’s incomplete, which can impact your credit score and prolong your wait time for funds.

Are there startup loans for women?

Startup business loans for women with bad credit, good credit and excellent credit are available. The U.S. Small Business Administration encourages women to get involved in the business sector and sponsors approximately 100 women’s business centers across the country.

Are there startup business loans for minorities?

Startup business loans are available for minorities, including men and women who identify as minorities.

Are there startup business loans for veterans?

Startup business loans are available for veterans from all branches of the U.S. military, including the Navy, Army and Marine Corps.

Are there banks that give startup business loans?

Many financial institutions, including banks and credit unions, provide startup business loans.

What are SBA loans for startups?

SBA loans are government loans offered by commercial lenders. Lenders offer these loans in conjunction with the Small Business Administration, which provides a partial repayment guarantee. This eliminates some of the risk factors associated with lending money to startups, which helps increase approval odds for new business owners. It’s worth noting that the SBA doesn’t provide direct loans except in emergency situations, such as those stemming from natural disasters.

Can you get international startup business loans?

Loans are available for international startups.

What is an unsecured startup business loan?

An unsecured startup loan is a loan that’s not backed by collateral, such as a stock shares or a vehicle. Unsecured loans are typically available for applicants with good or excellent credit.

What is collateral for a startup business loan?

When a lender requires collateral, they ask that you offer something of value in exchange for the loan. This may include company vehicles, equipment, inventory or the building that houses your business. Some lenders also accept accounts receivables, which means they can seize funds from invoicing customers if you don’t repay your loan.

Can you get a startup loan if you have bad credit?

Lenders offer startup loans for all credit types, including bad credit. However, you may have higher interest rates than someone with excellent credit, which is why some borrowers tackle credit issues before applying for funds. You may also receive a smaller loan amount than someone with a high FICO score, as the lender may view you as a bigger risk.

What type of credit score do I need for a startup loan?

You typically need a credit score of at least 620 to 650, though some lenders work with scores in the mid 500s to low 600s. You may have to provide collateral or choose an equity financing option if your credit needs some work.

Do you have to report a business loan on your taxes?

Business loans are generally not considered taxable income because you must repay the funds. However, there are exceptions, so check with potential lenders before requesting funds.

Which industries can request a startup business loan?

Startup business loans cover a wide range of industries, though requirements vary by lender. You can request funds for numerous types of industries, including daycares, medical businesses, retail stores, digital shops, tech-based companies, warehouses and restaurants.

Which industries are ineligible for startup loans?

Requirements vary by lender, but business owners may struggle to find funds for companies that involve gambling, religion, crude content or pyramid plans.

How many small business owners have loans?

More than seven out of 10 small business owners rely on some type of financing.

Can you have more than one startup business loan at a time?

You can have multiple startup loans at the same time if lenders approve the funds. This is most likely to happen if you have excellent credit. You may find it beneficial to choose several types of funding, such as a loan and working capital.

How are startups typically financed?

Startups often rely on funds from cash resources and loan disbursements. Some startup founders seek help from friends or family, peer lending or crowdfunding sites in addition to requesting traditional business loans for startups.

Can I request a loan if I’m an existing business owner?

Yes, some startups still need help after they launch their companies. You may also need funding for expansion. You can use these funds to purchase additional equipment, hire and train more employees or build additional locations.

How can I increase my chances of getting a startup business loan?

Work on establishing or repairing your credit. This includes your personal credit and your business credit. You can do this by paying accounts on time, disputing inaccurate charges, limiting your credit utilization ratio and exercising self-control when applying for new credit accounts.

What happens if I get rejected for a startup business loan?

You aren’t alone! Ask the lender why you got rejected so you can improve your odds of getting approved next time you apply; many lenders provide a written document detailing the reason for your rejection. Common rejection reasons include: missing paperwork, illegible forms or a credit history with opportunities for improvement. You may also need to make improvements to your business plan so lenders understand how your company can benefit from borrowed funds.

Ready to Take Your Startup to the Next Level?

Accessing the right lending assistance can make it easy to identify your financing options and get the best terms and interest rates. For expert help, fill out our online application or give us a call at Lendzi. We offer clear-cut terms, flexible borrowing options and an uncomplicated application process that creates a custom approach to financing. We’re here to put our skill and industry knowledge to work to help take your startup to the next level!

 

 

 

 

About MARK B

I have nothing but good things to say about CashOne's team. They have helped me in such critical situations when I felt suffocated.

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