Starting a business with no money and no track record of success is extremely difficult in any country, but it is now achievable thanks to business startup loans provided by various lenders such as banks. The best way to get a startup business loan is to choose the right type of financing, understand your credit score, and identify the best lending options.
Here is how to get a startup business loan. The only thing you have to do is research and follow the right measures, but in this instance, we have taken the burden and done research to save you time and money.
How to get a startup business loan:
1. Determine the amount of funding you need:
The source of funding is common for business owners to request much more funding than they need to get their business going. Getting approved for a large sum can result in them having trouble managing the loan payments, paying a lot of interest, or defaulting on the loan. A request that is too large can also lead to a lender rejecting it. By creating a financial forecast that includes projected income and expenses, you can avoid both unfortunate circumstances. The numbers will tell you exactly how much money to borrow to keep operations afloat until revenue starts coming in and your business can sustain itself once you start generating revenue. An investment like this should include the proper flow of money from a legitimate source like a loan from a bank in the form of a start-up business loan.
2. Check your personal and business credit scores:
In order to assess a loan applicant’s risk, lenders evaluate their credit score. The likelihood of an applicant making on-time payments is higher for those with a higher score. As business credit scores are typically available after six months to one year, new businesses may not have one, especially if they are brand new. For a startup business loan, you will need a credit score of at least 500 or higher. In order to offset the risk, some lenders offer funding solutions for business owners with credit scores of 500 or 600, but the borrowing costs are higher. Increasing your credit card limit and paying down debt are two ways you can improve your personal credit score if you are in immediate need of a startup business loan. Often, business loans are personally guaranteed, meaning the borrower agrees to pay back the debt with their own funds if the business fails to repay. Therefore, lenders also consider the applicant’s credit score. Prior to applying for a loan, request copies of your business credit reports and check your personal credit score to gauge your chances of approval.
3. Decide what type of loan you need:
There are various types of loans available to help you start your business, but you must choose wisely based on your needs. For example, lines of credit are a flexible funding source that functions similarly to a business credit card, whereas equipment financing is a lump-sum loan in which the machinery or other equipment you purchase serves as collateral securing the loan. The different kinds of loans are:
A> Term loans: A term loan can be used for a variety of business purposes and repaid over a specified period as a fixed, monthly payment, determined by your bank, credit union, or online lender.
B> Business lines of credit: Businesses can access a business line of credit to cover a variety of business expenses, such as payroll and inventory, with a business line of credit.
C> Commercial real estate loans: Commercial real estate loans are available through banks, online lenders, and the Small Business Administration.
D> SBA Loans: Many business expenses and projects can be covered by SBA loans at competitive interest rates.
E> Equipment Financing: Commercial trucks, medical devices, and machinery can be purchased with loan funds disbursed in one lump sum.
F> Microloans: Startups may be able to access small lump sum loans funded by the SBA or nonprofits.
4. Credit score for businesses:
If you’ve already begun building your business credit, the lender may check your credit rating. However, when you’re just getting started, lenders tend to pay more attention to your personal credit history. In some cases, you’ll also have to provide a personal guarantee that the loan will be repaid if the business defaults.
5. Gather and prepare the required documents:
The exact documents required to get a business loan vary by lender. However, there are some documents that are used by most lenders to assess and verify an applicant’s identity and business existence. A lender, for example, usually requires tax returns for at least the past two years, as well as bank statements, receivables, credit card sales, and outstanding invoices from the past four months. A comprehensive business plan can also help you get approved as a startup founder. It can demonstrate to lenders that the business will be financially stable enough to repay its debts based on future revenue and expense projections. You may also be required to provide copies of your business licenses and registrations, as well as your banking information for direct deposit, by lenders.
6. Compare lenders and conduct research:
If you need a loan before starting your startup firm, you should perform research on what lenders are granting you a loan in the simplest feasible way because you don’t want any stressful process that diverts your attention from your main goal, which is to make your business profitable. As if we were conducting research for you, but you still needed to set your own parameters to satisfy yourself.
A> Annual percentage rates (APR): Business loan APRs start around 9%, but rates can be higher for startup business loans, and they can even be lower for the most qualified applicants. You can find the APR on each lender’s website or by contacting their customer support representatives.
B> Fees and other costs: For handling paperwork and verifying application information, business lenders often charge origination fees ranging from 3% to 5% of the total loan amount. Some lenders also charge prepayment penalties for borrowers who pay off their loans early or late payment fees for borrowers who miss their due dates. These fees can increase the overall cost of borrowing, and some lenders eliminate them in order to remain competitive.
C> Reputation of the lender: When evaluating a lender, read online reviews to find out how well it is rated among current and past borrowers, even if it appears good on paper. Likewise, reach out to other members of your business community to find out what others have to say about the financial institution. If you discover any red flags, such as poor customer service, choose another lender.
7. Lastly, Submit Your Application:
Make sure you understand the application process and prepare the proper documentation once you’ve chosen a lender. Check out whether you can apply online or by phone—or if you must visit a branch—to find out if you can apply online. When you submit your application, you may be contacted by a lender representative to provide additional documentation, such as collateral or financial records.
Some of the best startup business loan providers:
Fundbox
| Max. amount | $150,000 |
| Term length | 12 or 24 weeks |
| Est. interest rate | 4.66% for 12 weeks 8.99% for 24 weeks |
| Min. credit score | 600 |
| Min. time in business | 6 months |
This is why we chose it
If your business needs an immediate cash infusion, a Fundbox business line of credit could help. You can borrow up to $150,000 at interest rates as low as 4.66% for a 3-week term and 8.99% for a 6-week term. You must operate your business for at least six months with a revenue of $100,000 or more to qualify. Only pay interest on what you withdraw. The funds can be transferred to your business checking account the next business day if approved.
Ondeck
| Max. amount | $250,000 |
| Term length | Up to 24 months |
| Est. interest rate | Starting at 35.40% APR |
| Min. credit score | 625 |
| Min. time in business | 12 months |
This is why we chose it
OnDeck’s business term loans may be used to finance a variety of expenses, including increasing your physical store, buying materials, or launching an advertising campaign. However, businesses should have been operating for at least twelve months and generating annual sales of $100,000 or more before they can apply; thus, start-ups must find another option. Payment is required daily or weekly if credit is accepted. It should be noted that APRs are usually high — starting from 35.40% — with the average OnDeck loan APR being 62.1%, based on issues during the first half of 2022 ending March 31st.
If you need access to revolving funds, OnDeck’s business line of credit may be a good option. However, OnDeck doesn’t service all industries, such as adult entertainment and loan brokers.
American Express
| Max. amount | $250,000 |
| Term length | 6, 12 or 18 months |
| Est. interest rate |
|
| Min. credit score | 660 |
| Min. time in business | 12 months |
This is why we chose it
An American Express business line of credit lets you access funds for your business ventures easily and quickly. With a FICO Score of 660 or higher, plus a minimum monthly revenue of $3,000, you can take advantage of up to $250,000 in available funds to invest in expansions, payroll, inventory, and more. Although the fees for six-month terms range from 2% to 9%, 12-month terms from 7.5% to 18%, and 18-month terms from 15.75% to 27%, you’ll only pay for what you withdraw – allowing you to arm yourself with the resources necessary for success.
Taycor Financial
| Max. amount | $2,000,000 |
| Term length | 12 to 84 months |
| Est. interest rate | 3.49% to 28.00% |
| Min. credit score | 550 |
| Min. time in business | None |
This is why we chose it
Taycor Financial stands out as a source for startups needing financial assistance. The company offers a range of financing services, including commercial equipment leasing and financing, business lines of credit, bridge loans, and term loans from up to $2,000,000 – all with no required minimum time in business. A credit score of 550 is the lowest accepted, but keep in mind that no down payment is necessary but it is common to provide personal guarantees. Lastly, interest rates can remain high.
A simple, one-page application can be used for financing up to $400,000. More significant amounts require an in-depth application.
Fora Financial
| Max. amount | $1,500,000 |
| Term length | Up to 15 months |
| Est. interest rate | Factor rates from 1.10 to 1.40 |
| Min. credit score | 500 |
| Min. time in business | 6 months |
This is why we chose it
A working capital loan from Fora Financial can furnish you with anywhere between $5,000 and $1,500,000 for any business need, with no limitations. It’s among our foremost suggestions for a bad credit business loan since it takes into account FICO Scores as low as 500 and doesn’t demand any security. On the other hand, you must make at least $12,000 in monthly revenue to be eligible. Fora Financial prides itself on its expeditious application process — claiming you’re able to receive approval and funding within 24-48 hours. Other lenders may charge prepayment penalties on business loans; however, Fora Financial will award you if paying off your debt ahead of schedule.
Frequently Asked Questions:
- With a startup business loan, how much can I borrow?
The amount you’re approved for will depend on your personal credit score, business credit score (if applicable), time in business, annual revenue, and debt-to-asset ratio. - What are the chances of getting a startup business loan?
The process of getting a startup business loan can be more challenging than getting a loan for an established business because most lenders determine how much risk they are taking on by looking at the financial stability and history of a business. Financial institutions must instead consider business plans, revenue projections, and other theoretical information when considering a new business application. To ensure that startups can make on-time debt payments, it is imperative that they prepare a comprehensive business plan. In addition, startup owners can improve their chances of approval by waiting until they have established revenue before applying for a loan. - If I have bad credit, can I get a startup business loan?
Bad credit can be used to obtain a startup loan, but it’s more difficult than for better-qualified applicants. A comprehensive business plan can be developed by prospective borrowers to support their loan applications by describing the business’ marketing strategy and how it plans to make money. There are also financial institutions that specialize in granting loans to low-credit borrowers, but these loans typically have higher interest rates and origination fees.
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