Blog

Get expert advice on every topic you need as a small business owner, from the ideation stage to your eventual exit. Our articles, quick tips, infographics and how-to guides can offer entrepreneurs the most up-to-date information they need to flourish.

Subscribe to our blog

Startup business loans: How to get funding

Posted by Early Growth

September 20, 2021    |     5-minute read (839 words)

Perhaps the greatest challenge any small business will face is obtaining the necessary funding to hire employees, purchase equipment, and expand their operations. Start-up business loans are available, but entrepreneurs often get confused about how to apply and how to increase their chances of seeing their loan application approved. Here’s everything you need to know to get funding for your business.

What is a startup business loan?

Startup business loans are small business loans typically valued at $50,000 or less. Figuring out how to get a bank loan for a startup business is often a fruitless task because most new businesses rarely meet the strict lending requirements of banks. Company owners unable to determine a way forward for how to get a startup loan from bank groups may want to look at start-up business loans. Most start-up business loans are procured from nontraditional lenders specialized in helping entrepreneurs to get their ventures off the ground with no prior track record.

I need a business loan for a startup — What are the requirements?

Startup loan requirements largely depend on the lender. Each lender will have different requirements, but there are still many similarities between each lender. Here’s what entrepreneurs need to know about general start-up loan requirements in the current business landscape.

  • Provide an updated business plan including growth projections and business strategies
  • Personal credit reports from the three big credit reporting bureaus
  • Business forecasts of cash flow and costs
  • Personal tax returns
  • Copies of any required licenses and registrations
  • Legal contracts
  • Any financial documents
All lenders will have slightly different requirements, but nearly all lenders will ask for the above list.

The benefits of startup business loans

There are many advantages to obtaining small business loans. Startup organizations need that initial injection of cash to fund their first few months. Here are some of the reasons why entrepreneurs should turn to start-up business loans:

  • Gain the necessary working capital – These business loans offer vital working capital to cover facilities, equipment, and employees.
  • Retain Ownership – The nature of startup business loans means the entrepreneur is not required to give up any ownership of their businesses.
  • Protect personal wealth – Maintaining separation between personal wealth and the business ensures the owner is not risking everything on their new venture.
  • Build business credit – External investment is the key to growth. Taking out an early business loan enables the business to begin building its credit history, thus making it more likely that it will qualify for future loans.
  • No collateral – The majority of these loans do not require any personal or business collateral to be put up as part of the lending arrangement.
Obtaining start-up funding can be extremely advantageous and could mean the difference between a viable business and an idea on a piece of paper.

How to get a bank loan for a startup business

Can a startup business get a loan from a bank? Although it can be difficult, it is possible. The key is to come equipped with detailed business information and be willing to shop around. Firstly, most business bank loans either come in the form of a term loan, which is a lump sum paid over a fixed period, or a line of credit, which can be drawn upon as needed in the same way as a credit card. Lines of credit are aimed at established businesses with strong track records of profitability. Here’s a quick guide to help you secure your loan:

Step one – sell yourself

It’s no secret that banks and other similar financial institutions are more conservative in who they lend to. Entrepreneurs are more likely to get their loan approved if they sell themselves. Banks want to see:

  • Previous experience with successful businesses
  • Someone who will invest their personal wealth
  • Entrepreneurs with a good credit history
Without at least one of these things, obtaining a startup business loan will prove impossible.

Step two – meet the loan requirements

Most banks are transparent about their business loan requirements. Read through them and ensure your business venture meets those loan requirements. Applying in the hope they will waive the requirements is a waste of time.

Step three – offer granular detail

Prospective company owners will typically have a meeting with a representative from the bank as part of the application process. This is where you get to present all the nuances of your business. Banks want to see detail. Make sure you have a solid business plan, forecasts for cashflow, realistic growth predictions, and potential costs. Invest your time in this level of precision to enhance your chances of getting accepted for a loan.

Conclusion

Navigating the world of how to get a startup business loan is never easy. Lenders are more conservative and stricter than ever before. With the help of Early Growth, you can increase your chances of getting the funding you need through our financial projection services. Let us be your virtual CFO and get your finances in order. Get in touch and schedule a call with Early Growth now.

Learn how we can put more time back in your day.