Where to Get Business Loans for Startup?

Introduction

Starting a new business can be an exciting yet challenging time. One of the biggest hurdles for many entrepreneurs is figuring out how to fund their startup. Securing financing to get your business off the ground is essential, but not always easy, especially for those without a strong credit history or collateral. Fortunately, there are a variety of options for where to get business loans for startup.

Types of Business Loans for Startups

When researching where to get business loans for startup, you’ll find there are several common types of financing available:

SBA Loans

One of the most popular options is a small business administration or SBA loan. Where to get business loans for startup through the SBA includes applying for an SBA 7(a) or 504 loan.

• SBA 7(a) loans offer up to $5 million for various business purposes and come from approved lenders. The SBA guarantees a portion of the loan to the lender.
• SBA 504 loans provide up to $5 million for major fixed assets like real estate or equipment. A lender funds 50%, a CDC funds 40%, and you fund 10%.

Business Lines of Credit

A line of credit provides access to a set borrowing limit you can draw from as needed. It functions similarly to a credit card and may offer better terms than credit cards designed for businesses.

Term Loans

These loans provide a lump sum upfront and allow you to make fixed monthly payments over a set repayment term. Term loans work for many one-time startup costs.

Equipment Financing

If you need to purchase expensive equipment like machinery or vehicles, equipment financing allows you to fund those large purchases by spreading out payments over time.

Merchant Cash Advances

A merchant cash advance provides a lump sum in exchange for a percentage of your future sales. Repayment comes from a set percent of daily credit card sales.

Alternative Loans

Peer-to-peer lending networks and online lenders provide loans with less stringent eligibility requirements than banks. Rates may be higher, but approval is easier for newer businesses.

Personal Loans

While riskier, taking out a personal loan and using it for your business is an option. However, your personal assets will be tied to the debt if the business fails.

Where to Get Startup Business Loans

Now that you know the main types of financing available, where exactly should you get business loans for startup? Here are some of the best options to consider:

Banks and Credit Unions

Traditional banks and credit unions are go-to sources for small business loans. While approval isn’t guaranteed, interest rates may be lower than alternative lenders. Developing a relationship with a banker can help your chances.

SBA Lenders

Hundreds of lenders offer SBA-backed financing. The SBA has local district offices that can connect you with preferred lenders. SBA loans offer favorable long terms and the security of a government guarantee.

Online Lenders

Online lenders like LendingClub, OnDeck, and Fundbox provide quick financing. Rates are often higher but they require less paperwork and can approve loans faster than banks.

Peer-to-Peer Lending Networks

P2P platforms like Prosper and Lending Club connect borrowers with individual investors. This opens up more potential sources of startup funding.

Equipment Financing Companies

Financing companies like Next Edge Equipment Finance specialize in funding for equipment, machinery, and vehicles. They offer industry expertise.

Non-Profit Organizations

Non-profits like Accion and Opportunity Fund offer microloans, business training, and support. Eligibility requirements vary but can help underserved entrepreneurs.

Business Development Companies

BDCs like PennantPark Investment provide loans plus equity financing and guidance. They’re designed to help grow small and mid-sized firms.

Family and Friends

Personal connections willing to loan you money are one of the most accessible funding sources. Be sure to draft loan documents and discuss repayment plans.

Crowdfunding Platforms

Crowdfunding sites let you raise small amounts from many backers. Particularly helpful for consumer products with broad appeal.

Angel Investors and Venture Capitalists

Angels and VCs provide sizable capital in exchange for equity stakes. Best for highly scalable companies with potential for huge growth.

Typical Requirements for Startup Business Loans

While every lender will have specific eligibility standards, there are some typical requirements you’ll need to meet to qualify when researching where to get business loans for startup:

• A business plan – Lenders want to see detailed projections and planning.
• 3+ years in business – Most want to see an operating history and track record. Startups may not qualify.
• 600+ personal credit score – Your score needs to demonstrate responsible borrowing.
• Collateral – Lenders often require assets to secure the loan and mitigate risk.
• Cash flow – You’ll need to provide projections and reporting showing consistent cash flow.
• Down payment – Most lenders require 10-30% down, sometimes more for startups.
• Relevant experience – Background in the industry or managing a business helps.

Steps to Getting a Startup Business Loan

Follow these key steps when exploring where to get business loans for startup:

1. Create a Business Plan

Lenders will want to thoroughly review your business plan. Make detailed financial projections and outline your operations, management, and growth plans.

2. Check Personal and Business Credit

Know your credit scores and history. Get copies of your business credit reports. Build your profiles before applying.

3. Choose Lenders to Apply With

Research lender options and compare terms. Weigh pros and cons. Start with lenders you have existing relationships with.

4. Prepare the Loan Application

Compile tax returns, financial statements, business documents, collateral details, and a business valuation.

5. Complete and Submit the Applications

Follow all instructions closely. Ask lenders what they require. Send completed apps with requested supplemental materials.

6. Wait for Approval Decisions

Lenders review applications and make approval decisions. The waiting period varies by lender but can be 1-6 weeks.

7. Accept Loan Terms

If approved, get loan terms in writing before accepting. Make sure you understand and agree with all conditions.

8. Satisfy Any Conditions

Most lenders will have conditions you must meet before they will fund the loan, like appraisals, paperwork, etc.

9. Obtain Funding at Closing

Once all conditions are met, the lender will fund the loan. Initial any final paperwork and get your financing!

Pros and Cons of Startup Business Loans

Where to get business loans for startup offers multiple options, but is taking on debt right for your company? Consider the key pros and cons:

Pros

• Loans don’t require giving up ownership equity.
• Interest rates are usually lower than equity returns investors seek.
• Payments are predictable based on fixed interest rates and terms.
• Loans provide access to upfront capital needed for growth.
• Interest payments are tax deductible.
• Less stringent qualification requirements than equity financing.

Cons

• Debt is risky if cash flow is inconsistent.
• Taking on too much debt can be problematic if revenue declines.
• Monthly payments add to expenses and cash flow burden.
• Miss payments and you damage your business’s credit.
• Loans usually require collateral you place at risk.
• High origination fees and closing costs on some loans.

Final Thoughts on Getting Business Loans for Startup

Access to capital is imperative to successfully starting and growing a small business. With many potential sources available, research where to get business loans for startup thoroughly to find the financing that best aligns with your needs and qualifications. Weigh the pros and cons, understand qualification criteria, and present the most credible application possible. With persistence and prudence, securing startup funding is an achievable milestone on your entrepreneurial journey.

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