startup business loan

How to Get a Startup Business Loan | Business Guide

As the pandemic has destroyed most businesses all around the world, entrepreneurship is growing rapidly. Starting a business of your own can be strategic and you have the quality to execute. But how to get a startup business loan is the most asked question of all time.

You have developed a strong business plan with good ideas and are ready to launch your own business in 2022. But when it comes to funding, money becomes a huge fact for startup businesses like yours.

According to a survey personal savings and personal credits were two of the top financing sources for entrepreneurs. If you don’t have enough savings or assets to liquidate, there is no option other than to have a business loan.

There are some facts for which startups fail to get loans from banks or lenders. The main reasons we have experienced that are a lack of business history, personal history, poor or no credit score, and weak business plan. But don.t worry. In this article, we will guide you on how you can go for a startup business loan and successfully achieve it. 

Find out the available sources of funding for Startup Business Loan 

First, you need to find out the available options to get a startup loan for your business. A bank loan is the first choice everyone prefers but it is tough to get a small Startup Business Loan from a bank. Because banks offer business loans mostly for established businesses.

In that sense, you have to investigate to have loans from other reliable sources. Here are some of the sources you can follow to apply for. 

  • Equipment Financing- It is specially designed to pay the purchase of equipment and machinery with monthly repayment terms over a set time. You will find it less strict as your equipment will be used as collateral. 
  • Business Credit Cards- Business credit cards are a great alternative to startup business loans and it is easy to have a business credit card with a personal guarantee. 
  • SBA 7 (a) loans- The small business administration has a special program named 7 (a) which offers loans up to $5 million and it is a lengthy process to get. Besides, it requires a minimum FICO SBSS credit score of 155 to avoid a manual credit review
  • SBA Microloans- It is operated by community development financial institutions (CDFIs) and other non-profit organizations where it offers  $14,000 to $50,000 for startups. 
  • Crowdfunding- You can collect for your project through popular crowdfunding platforms like Kickstarter. There are several options available for startups including rewards, debt, and equity. 
  • Personal or friends/family funding- If you can’t achieve funding from those sources, personal and family funding is a viable option to choose. But you should to careful to borrow money from them keeping in mind whether you can repay the loan on time. 

Prepare a depth analysis of the market 

Before you apply for a business loan, you have to research a lot about your targeted industry. In your analysis, you need to present a business plan, a detailed analysis of the market, and customer base, a statement of how much market share you are to capture, and how you will make a profit and generate cash flow.

These are very much important to create the attention of any lenders and banks. Because you have no business history and credit score, if you can share your planning properly there are chances to get approved.

Define your start-up cost to cover 

It is another fact that impacts a lot in your business loan approval. There are many industries in the market but you’re one should be specific in all criteria. Especially you need a clear list of initial costs. Once you can prepare a list of essential costs, you can present it to the lenders or bank for approval. Try to put the following cost into your list initially. 

  • Equipment purchases, like cash registers, machinery, and vehicles
  • Technology purchases, like computers, tablets, and printers
  • Initial inventory purchases
  • Permits and licenses, like city, country, and state licensing
  • Initial office supplies
  • Business furniture

After you have paid these costs, there are ongoing expenses like taxes, rent or mortgage payments, employee payroll, etc which will be required as your business grows. 

Develop your business plan

A well-planned business structure is a key point to seeking the attention of lenders. So you have to keep yourself engaged to develop a good business plan. Your business plan should include your financial projections like future sales, profits, income, cash flow, and so on.

But try to focus on your business purposes and objectives in your business plan. Your business plan or structure is a mirror of what you are going to do, how will you operate, and most importantly make profits. 

Get your startup registration 

It is important to be registered first before you apply for a business loan. Because no one is going to trust you unless you own a registered business. So register your start-up with the local government agency and make it official.

After the registration process, obtain your business licenses and permits according to your business industry. Once you have completed these papers works, you can apply for a loan and have the opportunity to get approvals. 

Prepare proper documentation 

Now it is time to prepare the proper documentation to apply. Your necessary documentation may vary from lender to lender. But in most cases, you have to prepare your business registration, EIN no, bank statements, income statements, personal tax returns, resume, financial projections, and so on.

Basically, a business loan takes time to process. Be careful to gather all your necessary documents before submitting them. Your chances to get the loan hugely depend on your legal papers. 

Final Word 

Operating a small business is difficult but starting a new business may be the toughest job for entrepreneurs like you. It is so challenging for those who want to start their own business with loans. But don’t worry.  There are enough nonprofit organizations and microlenders who offer loans for small businesses. Just you have to find them and appropriately apply them. 

We strongly believe that in this article we have focused on every essential point of how to get a startup business loan. If you have any further queries or suggestions, just leave them in the comment section and we will answer them as soon as possible.

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