So you’re a startup business, and you want to know how to get a business loan? You’ve come to the right place. I’ll spill the tea and share everything you need to know about how to get a business loan for startup.
Note: This post may contain affiliate links that allow this blog to earn money without a cost to you. Many thanks if you use them. Please read my disclosure for more info.
How Do You Get a Business Loan for a Startup?
Want to know how to get a business loan to start up your business? Here are the basic steps.
Step 1: Make sure you qualify for a business loan
Step 1: Make sure you qualify for a business loan
If you’re looking to get a business loan from a bank, you’ll need to make sure you qualify. Here are the top requirements that banks like to see for you to be eligible to get a business loan:
Know How Much You Need and the “Use of Funds”
To start, you need to know how much money you want and what you’ll use it for. Just telling the bank you need $10,000 to “start a business” won’t do. Instead, they want to see specifics and how you’ll use that money to make a profit so you can quickly and easily pay them back.
Learn More: Side Hustle Ideas: Over 200 Ways to Make Money on the Side
Generate Revenue
Ever heard the saying “It takes money to make money”? Unfortunately, this is generally true for business loans. Banks want to see that you have already tested your idea and received pre-orders or proved your concept with actual sales. If you don’t have sales yet, don’t worry, that fact doesn’t mean your loan will be declined instantly, it would just be a stronger application if you were already generating revenue.
Learn More: Going Viral: 7 Secret Tips to Explode your Reach
Create Financial Projections
In order to clearly state how much money you need and how you’ll use it, the bank will want to see financial projections. For example, you’ll want to create and include a cash flow projection that shows how your business will make money, be cash flow positive, and pay all of its bills (including the lender) every month.
Have a Business Plan
A business plan will describe exactly what your business is, how it makes money, and its strengths, goals, and strategies. You can use your business plan to outline the amount of money you need and share your financial projections and marketing plan.
Want a business plan template that also has a cash flow projection template? Check out this template here.
Show Good Credit History
Lenders want to get their money back, so they’re going to want to see that you and your business have good credit. Good credit proves to the bank that they can be confident that you will pay your bills on time. If you want to build a credit history for your business, sign up for a credit card under your business name and make sure you pay your bills on time every month to keep your business’s credit score high.
If you’re worried you won’t qualify for a credit card to build your credit, check out the Brigit App, they have a credit builder loan that can help you build your credit by building positive payment history. Credit Karma is another great tool to track and monitor your credit score.
Collateralize the Loan
If you want to get a business loan, you will have to “put your money where your mouth is.” In other words, you’re going to have to show that you believe in this business so much that if it fails and you can’t pay the bank back, then the bank can take something of yours. They call this collateralizing the loan. You can do this with your personal savings accounts, retirement accounts, insurance policies, or assets like your home. Some lenders may take assets like cars as collateral, but don’t expect to get a $100,000 loan and collateralize it with your 2009 Honda Civic.
Show Industry Experience
Lastly, you will need to show that you have industry experience. You can write up about your experience in the business plan. It also helps to have advisors and consultants on your team that fill in any industry gaps that you have.
What do you do if you don’t meet all these requirements?
Nav.com is a great resource because it will match you with a business funding option based on a short quiz that takes you and your business into consideration. In addition to loans, they also have other ways to get money to start your business, such as lines of credit, cash advances, and even credit card recommendations.
Step 2: Find a Lender
Once you feel like you have some of your business and financial ducks in a row, you can start looking for a lender. The SBA has a great tool that can help match you with a lender near you. You’ll simply use the information you collected from the first step and fill out a short quiz, and then they will send your contact information to local lenders, who will then reach out to you if they see you as a good fit.
Step 3: Apply
Once you match with a lender, it’s time to fill out the application and make sure your business plan and financial projections are solid. Want a free resource to help you get a business loan? Check out the SBA and get matched with a local business resource partner like the SBDC. These organizations are great because they offer free business counseling and can help you with the business loan application process.
How to Get a Business Loan for a Startup Approved
Wondering what you can do to get a business loan for a startup approved? Basically, you need to have the things discussed above which include a great idea, a sound business plan, financial projections and a specific plan for using the funds, industry experience, revenue, positive cash flow, great credit, and collateral. Basically, the less likely you are to need a loan the more likely you will be able to get one. A catch-22? Absolutely! But don’t worry, there’s more than one way to fund your business if you’re a startup.
How to Get a Business Loan with No Money
If you don’t have any money, but you want to start a business, all hope is not lost. If a traditional bank will not lend to you, you can look into business grants, private lenders, and even credit cards.
Better Than Loans: Business Grants
Unlike a business loan, grants do NOT require you to pay them back. Most times, they do not require you to show that you have money either. They may seem like an urban legend, something that people talk about, but that doesn’t actually exist, but I’m here to tell you that they do in fact exist. I can vouch for this because I have personally received business grants. Here are a few great resources to look for them:
Nav’s $10,000 Small Business Grant
Nav.com has a competition where they offer $10,000 grants every quarter. The only way to win is to try, so why not give it a shot?
Hello Alice
Hello Alice offers a great database full of business grants that you can apply for.
Individual Development Accounts
If you live in the USA there’s a thing called Individual Development Accounts. The availability of these varies by location, but they exist all over the US. In many areas, one of the ways these free funds can be used is to start a business. Click here to check out if there’s a program available near you and to see if they offer assistance for starting a business.
Private Lenders
When I taught business startup workshops, I would talk about the three F’s: Friends, Family, and Fools. Basically, you can look into individual people within your network that believe in you and are willing to support your business. Depending on how sophisticated of an investor they are, they may or may not have as stringent of lending requirements as banks do, meaning they may not care that you don’t have collateral, that you have bad credit, or that your business hasn’t generated any revenue.
Proceed with Caution: Credit Cards
You’re ready to start your business, but you have no money, and you don’t qualify for any grants or loans. If you have no other options, another option is to sign up for credit cards that will give you a cash advance. This is an option, but it doesn’t mean it’s a good one. Please be careful if you use the credit card route- they are going to charge you a lot of interest so that’s a very expensive way to fund your business. That being said, if you are confident that you have the next big idea and you just need a little bit of money to kick it off who am I to judge and withhold options from you?
Nav.com can match you with the best credit card and lines of credit options for you and your startup business.
Frequently Asked Questions about Business Loans for Startups
Here are the most frequently asked questions about business loans for startups.
How Much Can I Get a Business Loan For?
Business loans vary in size and type. For example, SBA microloans have a maximum amount of $50,000. However, SBA has 7(a) small loans that are up to $500,000 and Standard 7(a) and 504 loans that are up to $5 million. Usually, if you qualify to get a loan, the determining factor in how much you can get a loan for has to do with how much collateral you have. The good news is that there are some loans (like the SBA express loan) that do not require collateral if the loan is less than $25,000.
Is it Hard to Get a Business Loan for a Startup?
It depends. If you check all the boxes we discussed before it shouldn’t be difficult for you to get a business loan as long as you’re ready to work with the lender to show that you’ve met the requirements. However, if you have no industry experience, no collateral, negative cash flow, and bad credit, then yes, it’s probably going to be difficult to get a business loan. That being said, I want to encourage you to have a growth mindset. If you know what the requirements are and you know where you are falling behind then you have the data you need to make adjustments to your situation so that eventually it won’t be as difficult to get a business loan.
