Knowledge Centre » A Complete Guide to Startup Business Loan


You can have an amazing idea, a fantastic business plan, lots of enthusiasm, and a self-motivated team to convert your business dream into reality, but if you don’t have the money, your startup can’t fulfil the dream of becoming a successful business that’s ever existed.

Startups often need funds to buy equipment and inventory, hiring talents or cover operational costs. Surprisingly, having inadequate funds is one of the most common reasons the startup fails. The challenge is startups often have poor credit, no business history, and cash flow to lend favorable loans through traditional banks. Since they can’t qualify for the loans, startups face a lot of difficulties including an inability to expand operations or increase supply to meet demand.

If you find yourself in such a situation, don’t fret. There are a few attractive small business startup loans that may suit your needs and goals.

What is Startup Business Loans?

A startup business loan is any kind of funding taken by individuals who want to start a new business, or a young business looking to expand its current operations. There are various funding options available for startups such as SBA Microloans, Business Credit Cards, Friends and Family or Crowdfunding, Equipment Financing.

Qualification Requirements

Whether your startup will qualify for a loan is typically depends on how young your business is.

But how young it should be?

If you’re in the business for at least 6 months, you can apply for one of the above small business startup loans. If your business is older than 6 months then you might have more traditional business loan options available to you.

The most important factor that lenders consider while funding your startup is your personal credit score. The higher the score, the better your chances of qualifying for a startup loan.

Besides that, some lenders will also want to see if you have experience in a field related to your small business startup. You may also require to secure your loan with collateral such as a car or a house in some loan cases.

Though the qualification criteria for these types of small business financing vary from lender to lender. Here are some basic requirements for a startup business loan:

  • A personal credit score of 680 or higher
  • 6 months or more in business
  • Updated business plan
  • Additional Collateral (some cases)

While these above factors play an important role in getting startup loans, it’s not the only thing considered when making approval decisions. Depending on the lender, many different things can affect your eligibility. So, it’s vital to discuss your requirements with your lender and determine what works best for your small business.

How to Apply For a Startup Business Loan?

Since the application process depends on which financing option you’re applying to, it’s a great idea to research different startup loan options before finalizing one.

When applying for a startup loan, here is what to expect with each type of loan.

  • Applying for an SBA microloan from traditional banks can be challenging and time-consuming endeavor as they have extensive loan applications and complicated loan-approval process. Moreover, if you’re applying for an SBA microloan from a reliable lending marketplace, you may have to wait for a couple of weeks or a month to process your loan application.
  • The application process of business credit cards is quite easy and simple. You only require you federal tax ID or Social Security Number.
  • Getting creative funding like friends and family or crowdfunding depends on your relationships with your loved ones, how creative your business idea is, what crowdfunding sources you’re using and the risk associated with your startup.
  • Since the equipment purchased itself serves as collateral, the application process of equipment financing is super easy. The approval does not take more than 1 or 2 business days.

Documents you need before applying:

  • Business Plan
  • Driver’s License
  • Bank Account Number
  • Credit Score
  • Equipment Quote

Why Consider a Startup Business Loan?

Taking your startup ahead and affording initial business expenses require enough capital such as equipment, inventory, staff, payroll, rent, and other day-to-day expenses. Having business funding can help you grow, refine and push your business towards a brighter future. So if you’re running an emerging startup business and need some extra cash at your disposal, applying for a startup business loan can prove to be a great decision.

Advantages of startup loans every small business owner needs to know

  • Have the money to start your business
  • Can retain ownership and protect personal wealth
  • Can build business credit
  • Most of the loans don’t require any collateral

Situations You Can Use Startup Loans For:

  • Acquire more equipment or inventory
  • Expand business operations
  • Cover operational costs
  • Purchase or construction of a real estate
  • Hire employees and payroll

How Do Startup Business Loan Work?

Wondering how a startup loan works and which startup loan is the best option for you?

Well, you have landed on the right place.

The ocean of business financing can be frightening, especially if you’re applying for a startup business loan for the very first time.

Besides that, getting money from lenders is such a challenging and time-consuming endeavor for aspirational entrepreneurs. With no credit rating and proven business history and risky and threating nature of the loan, lenders usually intimidate to fund startups.

Don’t worry! As we’ve mentioned above, there are a variety of different small business startup loans available to young entrepreneurs.

Check them out and see what fits your business best.

SBA Microloans

SBA microloan program is a great choice for startup business owners who are looking for a smaller amount to start or expand their businesses. These loans can also be used for working capital and the purchase of furniture, equipment, machinery, and supplies. However, microloans can’t be used for paying debts or buying real estate.

The SBA doesn’t guarantee microloans any portion of the loan. While microloans administrated by specifically designated alternative lenders, the funds are actually provided by the SBA. A business can borrow a maximum principal of $50,000 with a term of six years. Interest rates are generally observed from 8% to 13%, and the average loan amount is roughly $13,000.

Read the complete guide to SBA Loans

Business Credit Cards

Ultimately, business credit cards are just a perfect lending solution for any small business owner. However, as compare to other options in our list, they rank at the top funding options for those who want the ease of having regular access to cash flow and financial flexibility in the form of credit.

Whether you are looking to purchase equipment, pay wages to employees, or invest in assets, a business credit card is your ultimate solution in any bad credit situations. Besides that, credit cards offer businesses special rewards programs, cashback, and sign-up bonuses. These cards typically carry limits of $50,000 or more. While you don’t require any collateral for small business credit cards, some issuers may ask for a personal guarantee.

Read a complete guide to Business Credit Cards

Friends and Family or crowdfunding

Crowdfunding is a great fundraising option for startups who want to test their product idea and get market insight. It is also often used by inventors, entrepreneurs, musicians, filmmakers, artists, and charities.

When traditional small business startup loans aren’t available to your new business or you have an amazing business idea that could change the world, you can consider family and friends or raise funds. Crowdfunding makes use of the internet to connect with thousands of potential funders –primarily via social media, crowdfunding platforms, relatives and work acquaintances. Also, there are many other websites that offer to crowdfund to a wide range of business types.

This unique method of raising money for your business has numerous benefits. You can reach thousands of passionate investors who can see, interact and share your fundraising campaigns. From launch to close, you get the chance to advertise and market your business idea through social media, email newsletter and other popular forms of marketing tactics. This will help increase awareness, build trust among prospective customers, and boost website traffic. Moreover, it provides validation, social proof and an opportunity to refine your business idea.

Equipment Financing

Last but not least – equipment financing is going to be one of the best financing options for startups that are finding it difficult to get capital to purchase needed equipment such as the lease of a vehicle, basic office machinery or other specialized equipment for business operations.

You can borrow or purchase all the latest tools and technologies or upgrade an existing one by applying for equipment financing. You can acquire everything from tables to computers, trucks, heavy machinery or virtually any other equipment for your business.

The asset purchased acts as a security or collateral for the loan. As long as the loan is repaid promptly, you can use and access the equipment. If you default on your loan, the lender can repossess the equipment to cover the outstanding amount of the loan. The best thing about this loan is that it helps you finance up to 100% of the new or old equipment for your business.

Read the complete guide to Invoice Financing


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