Last Updated on September 5, 2022

Getting start-up business loans for small businesses

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If you want your new business idea to be a success, you must invest funds into it. You can’t start a new business without capital. No matter how small or large your idea is, you need some financial resources to make it work. You can’t avoid certain costs at the beginning of the journey, and that’s why many entrepreneurs go for start-up business loans. With that, they can kick-start their ideas in a big way to ensure success.

The truth is that your savings are a good source of business funding.

But when your idea is extensive, that fund becomes inadequate.

We also have some good details about the processes, the requirements, and some good options to consider.

Go ahead and discover everything you need to know about start-up business loans.

What is a start-up business loan?

Start-up business loans are those initial financing that an entrepreneur uses to handle all the expenses of a new business.

Every new business comes with lots of initial requirements that you must handle before the opening day.

Some of those requirements can be paying for office space, acquiring your licenses or permits, product manufacturing, marketing, market testing, initial hires, etc.

In some businesses, you may need to purchase some equipment, inventory, furniture, supplies, construction equipment, etc.

All these are some of the things you need to pay for even before opening the business.

Image by Gerd Altmann from Pixabay

But while some businesses may require huge loans, others may not.

It all depends on the scale of the start-up or the business model you want to use.

The bottom line is, there’re many reasons to get start-up loans for your business.

Sometimes, a start-up business loans will help you handle cash flow challenges during the business’s early months.

Even though we all pray that we hit the ground running when we launch our new businesses, it’s not always the case.

In those few months, when sales or patronage is low, you can lean on the loans you acquired to keep the business afloat.

Where to get a start-up business loan?

When it comes to start-up loans, you have some options to explore.

1. Personal/loans from friends

Many people don’t consider their personal money as loans to starts their business.

But it is, and if you see it that way, you can strive harder to make your business a success.

The only challenge you may face is when the fund is not enough for what you need to start up the business.

So before you decide on a personal loan, first calculate the total cost of starting your business to know if you have the right amount.

Even if the amount you’ve saved up is adequate to pay for the preliminaries, what about the business support funds for those months when things will be a bit rocky.

Therefore, your best option is to support your loan with business credit.

Some of the sources of personal start-up business loans include:

  • Home equity; this is a case of borrowing against your home’s value to start up a business. This option is risky because if the business fails, you’ll end up in more debt. But if it succeeds, you can repay it all.
  • Using your credit card; is another way to get a personal loan for your business. If you get a business CC, that’ll be the best, but when you can’t, you can use your CC to purchase most of the things you need for your business to start. However, make sure you pay back on time to protect your credit scores.
  • Borrowing from friends or family members; getting business funding from your friends or family is another way to get personal loans. The good thing is that these people want to see you succeed. So, it may not take much persuasion or process to get them to help. But we advise that you allow them to support you willingly and not grudgingly. Also, make sure you treat the loan as what it is so that you can repay them at the time you agreed to pay them. Taking money from close relationships can lead to more problems, especially when you mismanaged the funds and didn’t payback.
  • Loans on 401Kor IRA savings; you can borrow on your 401K, or you can withdraw some money from that retirement plan you have going. But we advise using all your retirement savings for a new business. It could be devastating to lose all your backup funds at once. So, tread carefully.

2. Online lending companies

Here is one good source of start-up business loans that a small business can be sure to get.

The reason is that these sources don’t ask for collateral or have stringent qualification requirements for small businesses.

Moreover, they sometimes don’t mind your bad credit scores.

They extend start-up loans very fast because everything is completed online.

It takes only 24 hours to access online business loans.

Their processes and requirements are simple and straightforward.

Also, these online lenders offer more transparent fees, and their loan terms are favorable to a business, especially in the start-up stage.

Everything is spelled out even before you get the funds.

You’ll know the amount you must pay and the time you have to pay for it.

Another exciting aspect of acquiring start-up business loans online is that most lenders send notifications to remind you when the payment date is closer.

They can send a text or even emails to remind you of the deadline.

3. Debt Crowdfunding Loan

There’re many types of crowdfunding, but we’re more interested in debt crowdfunding.

Debt-based or loan/based crowdfunding is a type that allows small businesses and large organizations to borrow from a large pool of lenders.

This method is simple but also tasking.

There’re some things you must do to ensure a successful crowdfunding campaign.


You need to prepare a pitch that’ll convince the crowd that you can repay the loan’s interests.

Yes! In this type of crowdfunding, the borrower pays a certain amount as interest, which all the contributors share depending on the amount they contributed.

In your pitch, you must let the members know the amount of business start-up loan you need.

The business objectives you aim to pursue, and the purpose of such a loan.

The crowdfunding platform will also carry out some credit checks, due diligence, and decide on the loan terms.

A person with some ideas to make money
Image by mohamed Hassan from Pixabay

Sometimes, if the amount is huge, the platform may require some forms of security, which may be a personal guarantee or a business asset.

The truth is that debt-based crowdfunding is a viable option for a small business with a good business credit score to get loans.

But it’s not always a sure bet.

If your campaigns fail or you couldn’t realize the specified amount, the crowdfunding platform admins will return the money to the contributors.

Also, if your credit scores are not acceptable, you’ll not be permitted to launch a campaign in the first place.

4. Traditional lenders

A small business can also acquire start-up business loans from traditional lenders like banks, although it’s not always easy.

Many companies get their business funding from their banks.

The good thing about getting loans from a bank is that you can be sure of larger amounts.

Some entrepreneurs who have good credit scores only rely on their banks for urgent business funding whenever they have a business to transact.

But while it’s easy for companies or corporations, it’s not so easy for small businesses.

If you’re launching a business from scratch, it isn’t easy to convince the banks to lend you money.

This was not so in the past.

Initially, businesses of all scales could get loans from commercial banks, but nowadays, these institutions are afraid of losing their money when such businesses fail.

They perceive new businesses as a high-risk investment, not worth their time.

gold word "invest" for start-up loans
Image by Pete Linforth from Pixabay

Instead, they would preferably extend loan instruments to larger organizations.

We’re not saying that it’s impossible to get a bank loan.

It is possible if you’re up for the rigorous application processes plus their stringent criteria that you may not meet or struggle to meet.

Also, the approval rates of bank loans are nothing to write home about.

Sometimes, you’ll apply and pass through the whole annoying process, and at the end of the day, your loan will not be approved.

You’ll also have to get so many documents and even visit the branch several times to complete their processes.

Afterward, you may have to wait for months before getting approval or rejection.

So, you need to consider all these issues before opting for a bank loan.

The only good thing is that banks can give you a huge amount of start-up loans.

But the struggle and the stress is something to remember before you start the journey.

They’ll also need your credit score to approve the loans, which you may not have as a new venture.

5. SBA7a loans

SBA stands for Small Business Administration, and you can acquire start-up business loans through them.

The truth is that SBA won’t give you the loan directly, but they’ll be your collateral to get the amount you need.

SBA will guarantee to pay a certain amount of the loan for you, and with that, banks or other lending institutions will agree to fund your business.

The loans are backed by the government, so these traditional lenders will trust that they’ll get their money bank even if the business fails.

To qualify for SBA loans, you’ll need to show the lender your well-structured and informative business plan that shows the viability of your start-up.

The lender will take some time to process the loan and send the funds to you.

But make sure you have created the budget on where and how to apply the funds.

You don’t want to end up in more trouble from the loan.

To be on the safe side, we recommend that you target your SBA loans on the following costs:

  • Land; This is a portion you need for your business and not the space to leave for years.
  • Existing business debt; Using your SBA loan to pay off debt will save you from higher interest rates. So, it’s a good investment to consider
  • Business equipment/furniture; You can also use the loan to get the equipment you need for your business to succeed. Also, using it for the furniture you need to start your office is okay.

But before going for SBA loans, you need to know some crucial aspects of the loan, such as:

The amount you can get as a start-up.

This is important because even though it’s possible to get a $5 million loan, your business idea may not qualify for such an amount.

So, make sure you find out the amount you can get.

What’s the guarantee percentage?

SBA won’t guarantee the total amount for your business loan.

Some amounts can be 85%, while other amounts might be 75%.

The remaining 15% or 25% is usually yours to guarantee.

So, before you go for SBA loans, be sure that you have something to guarantee the lending institution.

Loan interest rate;

Anything called a loan has interest rates which the borrower must pay, and SBA loans are not exceptions.

So, before you agree to the loan, get the exact interest rate you’ll pay.

Don’t be carried away with the excitement and land yourself in bigger trouble.

Some of the loans have fixed interest rates, but some rates vary.

The difference between the two is that the formers can be higher because it doesn’t change throughout the repayment period.

But the latter can be uncertain and may take you unawares.

So, try to get a fixed rate and know the percentage.

Loan maturity term;

Your loan’s maturity is usually dependent on your capacity to pay back and the amount of money you borrowed.

Many lenders usually have a stipulated time for the loan to mature, depending on the type you took out.

For instance, if you’re acquiring a start-up business loan for inventory or equipment, the maturity terms will be very different compared to someone borrowing for real estate.

So, try to find out the term of the loan to prepare yourself for it.

Loan fees;

Even though you’re getting the loan through SBA, there’re some fees you must pay on the loan.

Two of the compulsory fees for SBA loans include the guaranty and servicing fees.

If the loan is below $700k, you’ll be expecting a guaranty fee of 3%, but if it’s above that amount, you’ll be paying 3.5%.

But if the loan is up to $1 million, your guaranty fee will be 3.75%.

As for the service fee, you’ll be paying 0.520you’re your outstanding balance throughout the loan life.

Prepayment penalties;

If your loan’s maturity period is 15 years or above, you’ll pay a P.P if you pay 25% and above within the first 3 years.

The prepayment penalty will be 5% in the first year, 3% in the second year, and 1% during the 3rd year.

When you’ve checked out all these terms and conditions, the next thing is to pick the best lender.

We recommend using a lending institution like a credit union or bank you do business with, you understand.

It’s good to use a lender who’ll understand your model and how the inflows come.

That way, they’ll know how to help you with a suitable start-up business loan.

6. Other Business Financing Options

When it comes to start-up business finance, there’re lots of options to consider.

Equipment Financing;

If your business requires heavy machinery and equipment, you should consider this option.

Equipment loans are available and also offer easy repayment terms such as monthly installment repayments.

But remember, this loan will only be for buying the equipment and nothing else.

One of the things we love about this financing is that you don’t need to worry about collateral.

The equipment you buy with the loan is all the lender needs to recover the money if you fail to repay as agreed.

Another interesting thing is that banks usually extend such loans to entrepreneurs and some SBA loans are solely for equipment financing.

Acquire a Business Credit Card;

Do you know that you can use your business CC to get an unsecured loan?

If you don’t have anywhere to borrow money or can’t access start-up business loans from the bank, use your card to make the initial purchases.

With your card, you can start a line of credit and at least keep your CC for other things.

business credit card for start-up business loan
Image by Michal Jarmoluk from Pixabay

But bear in mind that getting your Business credit card requires a good credit score plus your personal and business income.

Also, you need to provide a personal guarantee to the issuer to qualify for the credit card.

How to apply for a start-up loan?

There’re many sources and many actions to take if you decide to get start-up business loans.

1. Analyze your business credit and personal credit score

The first thing you should do is to analyze your business credit score.

Before you start looking for a loan source to try, check both your business credit and personal credit scores to determine the business’s creditworthiness.

If you have a good business credit score, it’ll be easier and faster to acquire the start-up loan you need for the business.

But when the business credit score is bad, you’ll have to take a longer route.

So, we recommend that you do what you can to improve your credit score.

2. Decide on the best source for start-up business loans.

The second step is to decide on the start-up business loans company to use and meet their requirements.

If you decide to approach the traditional lending institutions, then go ahead to do that but try to determine the requirements you must meet to qualify for the loan.

You also have online lenders and even debt-based crowdfunding.

Take your time to select the best path to follow.

3. Evaluate your business from your lender’s perspective.

Imagine yourself as the lender instead of the borrower.

Then evaluate your business in terms of how risky it is, your level of experience in running the business, and the time it’ll take to make profits from the business.

Also, check your credit history and then ask yourself if you have an asset or equipment to cushion the event of business failure.

To answer some of these questions, we recommend your construct a well-detailed business plan.

4. Start the application process.

After you’ve taken care of the three steps before, it’s time to start the process.

But remember, different lenders have different requirements.

But there are requirements that all lenders generally expect.

So, you should start by preparing them.

  • Get copies of your credit scores and reports.
  • Prepare a well-detailed business plan.
  • Make business forecasts and add your expected cash flow & cost.
  • Get your IRS documents to show your tax returns both for your personal and business tax accounts.
  • Get the necessary licenses, permits, registrations, etc., from your State.
  • Gather every available financial document such as credit card sales, bank statements, accounts receivables, unpaid invoices, etc.
  • Provide every legal contract, if any, such as leasing, franchise, and incorporation.

Since you’re just starting, it’s possible not to have a business credit score report or tax returns.

Bear in mind that your credit score reports and account statements can be okay too.

If you gather all these documents, we recommend sending them with your application documents and then waiting.

Don’t forget to find out the amount of time it usually takes for your lender to evaluate loan applications.

That way, you’ll choose to use them or not, depending on the time you have to start your business.

Final Words

Your new idea deserves the chance to grow.

If your savings is not enough to start it, go for start-up business loans.

You can use such loans to take off the start-up costs and support the business during the first few months.

There’re lots of sources for start-up loans, just like we’ve shared in this article.

You can try the traditional lending institutions, or you can try the online sources.

There’s also a debt-based crowdfunding loan to consider.

But before you do all that, make sure that you have a good business credit or personal credit score.

That way, you can get the loan faster and with lesser hassle.

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