Are There Any Business Loans for Startups?

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If you have a relatively new business, you may need access to startup business loans or other financing options to take it to the next level. You can come up with a million-dollar idea, plan a business around it, and do all you can to turn it into reality. However, unless you have money to transform the idea into a startup, it remains just a wish.

Like any other business, startups need capital, also called seed funds, to get started. The money will go to buying equipment, paying for talent, stocking the inventory, and covering the business’s operational costs.

By far, the greatest challenge that causes many small business startups to fail is the lack of adequate funding. With little resources, these new businesses barely ever get off the ground within the first year. However, startup business loans and access to funding are changing this. Read on to discover how.

What is a Startup Business Loan?

A startup business loan is a form of financing meant to help a new business meet its initial financial needs. Entrepreneurs seek startup loans to channel the funds into tasks that demand working capital. The most common uses of the loan are business registration and branding, purchasing inventory, equipment, and machinery, and setting up offices and furniture.

There are seemingly infinite sources for small business loans for US entrepreneurs today – from local banks and venture capitalists to online lenders and governmental organizations. However, each of these sources of funding come with their own opportunities and limitations. Some sources are ideal for established businesses with collateral, while others are designed for new businesses just getting started.

How a Startup Business Loan Can Grow Your Small Business

A startup business loan makes it possible for a new venture to get off the ground. It can also help stagnant businesses grow and growing businesses to grow even faster. Here are five ways a startup loan can help your business.

Startup Capital Can Bring Idea into Reality

Simply put, startup loans have given a lease of life to ideas that would otherwise never have seen the light of day. Unfortunately, many people with grand ideas fail to turn them into profit because they lack the equipment, inventory, and service costs to get the business started. Since every business needs an initial investment, this loan is the go-to source of funding aside from savings, credit cards, and family and friend contributions.

Startup Business Loan is Great for Building Credit

Business credit is the rating of trust in which other businesses, people, and commercial institutions have in the business. A new business, understandably, has zero credit score. However, taking a startup business loan and repaying it in time and full can go a long way to establish the business as creditworthy. Some entrepreneurs take startup business loans, not because they absolutely need the funds, but because they can build their credit by taking small loans at first, then higher amounts and paying it back to build good business credit.

Market the Business Better

Sophisticated marketing techniques are effective but often costly and resource-intensive. For example, social media marketing, search engine optimization, and promotion in prominent media can be quite expensive. Startup business loans are ideal for running small businesses struggling to compete due to limited marketing budgets.

Insurance Against Seasonal Troughs and Peaks

Slumps and opportunities that come in seasonally can rock a business. When business is terrible during one part of the year and excellent during another, a business needs a stable source of funds to ride out the uncertainties. Small startup business loans can help a business keep the operational momentum during both high and low seasons. They get to weather the tough times with reserve funds and make full use of the opportunities the times of plenty bring.

​​​​Startup Business Loans Available Options

Here are seven of the top sources of startup business loans you can seek today.

1. SBA Microloans

An SBA Microloan is a small-scale loan funded by the SBA (Small Business Administration). Small-scale entrepreneurs can be eligible to borrow as much as $50,000 on the SBA microloan platform, but the typical loans are much smaller.

The SBA may provide funding for the microloans, but it is often an intermediary lender that provides the funds. The lender, often a nonprofit community development corporation, will process the loan applications, distribute funds for successful applications, and manage the loan.

2. SBA 7(a) Loans

The 7(a) loan is by far the most popular loan product offered by the SBA. This is a type of loan structured to offer a financial reprieve for small businesses with special requirements. The maximum loan amount the SBA can issue is $5 million. This loan is available for small businesses that operate for profit and have invested reasonably in equity.

Most businesses that seek 7a loans already have other sources of finances, such as personal savings and assets. However, they must demonstrate the need for the loan and outline a sound purpose on which the funds will be spent. For example, SBA 7(a) startup business loans can be used for short and long-term investments, recurrent business expenses, or restocking.

3. Business Credit Cards

Opening a line of credit has become a necessary rite of passage for every business. Business credit allows small businesses to access working capital at a cost-friendly to their budget. In addition, business credit cards can be used to build a strong business credit history and further elevate the business’s chances of accessing cheaper and collateral-free credit in the future.

4. Crowdfunding

Crowdfunding is a way for a person with an idea to raise money in exchange for rewards, debts, or equity. Also called peer-to-peer funding, crowdfunding is a democratized way for a startup to raise funds from believers. This way of raising capital is unique and can offer a lease of life to ideas and businesses with no access to any other source of credit.

5. Small Business Grants

Small business grants are small amounts of capital funds that further the objectives or operations of a nonprofit, state, or federal organization. A grant may be awarded by a private or public entity or even a government. However, unlike a traditional loan, the business does not need to repay the funds granted to it. Thus, a small business grant is a sure way for a business to start or grow without mortgaging its future.

6. Personal Loans

As the name implies, a personal loan is money borrowed by an entrepreneur in his individual capacity with the intent to use it to start or advance a business. A personal loan can be used to start a new business or to improve the credit track record of an existing one. This type of credit can be borrowed from banks, credit unions, online lenders, or even individuals. Personal loans are often term loans, which means they are paid back in fixed monthly installments with interest.

7. Asset-Based Financing

Asset financing is the act of borrowing money or taking out a loan against the business’s balance sheet assets such as inventory or investments. Asset financing allows businesses to borrow as much as 100% of the value of their assets with a fixed rate and term. The maximum amount of loan the business can qualify for will depend on the value of the assets, which act as the collateral.

First Down Funding: Alternative Funding for Small Businesses

Alternative financing is different from a typical commercial loan taken from a bank. First Down Funding is a short-term type of funding that is meant to be issued fast and repaid quickly. These funding options are often designed for small businesses that have had difficulty accessing traditional funding sources in the past. The amount of loan the business can get will largely depend on the business’ performance, including monthly sales, the industry, and the age of the startup.

FAQs About Startup Business Loans

​How do I qualify for a business startup loan?

The qualification for a small business loan will depend on the nature of the loan, the amount, and the lender. Typically, you need a good business credit score or collateral, a business plan or sales records, insurance, and copies of your financial details.

Do banks give loans to startups?

Yes, banks and other financial institutions provide loans designed for small startup businesses. In addition, you can seek cheaper asset-backed loans and other term or working capital loans to advance your business.

Which banks offer startup business loans?

Most commercial and investment banks that lend depositor money can give you a startup business loan. Compare the different banks in your area or city to find one with the friendliest terms and conditions.

How hard is it to get a startup business loan?

How easy or hard it is for you to be approved for a small business loan depends on several factors. The most important is your credit score, then the financial performance of the business. You should build a strong personal credit score and business credit score to make it easier to get cheaper loans.

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