If you’re wondering how to get funding a startup business, you’ll want to know where to find it and what you’ll need to apply. With so many options out there, many aspiring entrepreneurs can feel a little perplexed. However, once you know what the parameters are, things get a lot easier. Perhaps the most important thing to remember is that not all small business funding is created equal. Most traditional lenders will have strict rules on credit history; others will require specific documentation; and others will demand a higher rate of interest.
However, there are alternatives to established banks and creditors. For example, some alternative lenders offer programs that focus on a startup’s revenue performance over your credit score. Although there are certainly affordable options out there, it’s still important to know which type of funding is right for you. Furthermore, no matter your creditor’s requirements, it’s important to prepare before you submit your application. Here, we talk through where to find loans to start a business and what you need before you apply.

1. SBA startup loan

The U.S. Small Business Administration (SBA) is the government agency for small business. Founded in 1953, this agency connects entrepreneurs to capital, education, and advocacy. Therefore, it’s a good place to start if you’re looking for a loan to start a business. For example, with the SBA’s Express Loan you can apply for up to $350,000, 50% of which is guaranteed by the agency. This means that the process requires less documentation and lenders are more likely to approve.
Moreover, their approval times are much faster, with the average application processed in 36 hours. However, there is a catch – although approval times are speedy, access to funds can be slow. Often, it can take up to 90 days to get your hands on your capital. On the bright side, government guaranteed loans cannot exceed an interest rate of 6.5% over the prime. Furthermore, the terms of the loans are fairly flexible, so you can use them for a number of things, including purchasing inventory, store fit-outs, rents, or equipment.
However, SBA small business loans cannot be used to pay off other debts. Additionally, many lenders will require collateral and a larger required down payment of around 25–30%. One important thing to understand is that the SBA does not give out loans themselves – they’re more like a broker. Therefore, you need to find an approved lender to obtain an SBA loan.

2. Microloan

If you’re exploring how to get funding for a startup business on a short-term basis, a microloan may be right for you. These small loans are relatively low interest, as microlenders function as nonprofit financing. Generally, microlenders are founded as community interest operations, which aim to help minorities and disadvantaged communities. Subsequently, this financing is likely to have specific philanthropic conditions. For instance, the lender may require that a certain proportion of your workforce are from low-income backgrounds.
Again, the SBA is a good place to look for microloan programs. For example, the SBA Community Advantage Programoffers loans of up to $250,000 through state-specific nonprofits, guaranteed up to 85%. In addition, the SBA runs their microloan program which brokers funding of up to $50,000 between approved lenders and borrowers. The first step to applying for a microloan is to find an SBA-approved lender, which are referred to as ‘intermediaries’. These lenders are grouped by state and each have their own specific requirements, so be sure to do your reading.

3. Business line of credit

A startup business line of credit functions similarly to a credit card. A line of credit is available from both traditional lenders and online alternatives, each with their own rates and requirements. During the application process, the lender will approve a maximum amount – generally between $5,000 to $150,000. However, the borrower only pays interest against the amount of the line they draw. So, as long as you don’t exceed the maximum and keep up with your monthly repayments and fees, you’re all good.
If you’re researching how to get funding for a startup business, the advantages of a line of credit are pretty clear. The obvious benefit of this is the speed of financing; sometimes, the timeline from approval to funding access is as little as 24 hours. Furthermore, a line of credit generally has flexible spending terms. A line of credit can be used for startup costs, marketing, inventory, or to sustain changes in seasonal sales. In addition, a business line of credit is usually an unsecured funding program, which means that lenders do not require collateral.
However, perhaps unsurprisingly, applicants ]need to have a better than average credit score – generally of around 650 or over. Sometimes, lenders may not finance a startup from zero – they may require that the business has been running for at least a few months. Bear in mind established banks will be very cautious about offering a line of credit to a startup. Often, your best bet is an alternative lender.

Preparing for your application

The key element of the small business loan application process is your business plan. Not only will this plan show prospective lenders how you intend to spend the loan, but it will also show that your business venture will be profitable. It’s crucial that your business plan is well researched and professionally presented. Broadly speaking, a good business plan includes:
  • Your business aims and objectives
  • An outline of your skills and experience
  • Description of your target customers
  • Market research and competition
  • A sales and marketing plan
  • An operations strategy
With a concise, well-structured business plan, you can prove to lenders that you are a sound investment. However, when writing your plan, it’s important to not exaggerate profits or downplay operating costs. Lenders prefer a conservative estimate to an exaggerated one, so make sure that your costings are realistic.
Before applying, it’s also important to check your personal credit score. Before starting your application, contact the major credit score providers and make sure they have the right information. If there are any errors, make sure they’re corrected before submitting your application. If you’re going into business as a sole proprietor, then your personal credit score will be taken into account by your funding provider. As most people are well aware, the higher your credit score, the better the rate the lender will offer. In addition to your credit scores and business plan, you’ll need to make sure all your personal documentation is in order. For a full outline of what you need to make your application, check out this article.

Get funding for a startup business – more straightforward than it seems.

Remember, if you are looking to make your business dreams a reality, there are a lot of options. No matter your financial circumstances or credit score, there is guidance available from government agencies and independent advisors. Although the amount of choice may feel a little overwhelming, once you get your bearings, you are sure to get the financial support you need. With careful planning, focus, and a dose of determination, the question of how to get funding for a startup business will seem a lot simpler.