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Starting a business isn’t just about having a great idea and a passionate team. It often requires money to get things going. Without enough funds, it can be hard for startups to grow, hire the right people, or manage day-to-day expenses. This lack of money is a common reason many startups fail, especially since banks may not want to lend to new businesses due to limited credit or business history.
But don’t worry—there are ways to fund your startup. Startup loans can help individuals kickstart their projects or support young businesses looking to expand. These loans can provide the cash you need to make your entrepreneurial dreams come true. But there are certain things that you need to take care of before a getting a business loan.
What are the qualification requirements?
Whether your startup can get a loan often depends on how long you’ve been in business. If your business has been running for at least six months, you can apply for small business startup loans. If your business is older than six months, you might qualify for more traditional business loans.
One of the main things lenders look at is your personal credit score. A higher score increases your chances of getting approved for a startup loan. Lenders may also want to know if you have experience in the field your business operates in.
In some situations, you might need to offer collateral like a car or a house to secure the loan. This gives the lender some security in case you’re unable to repay the loan.
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:
- Personal credit score: A score of 680 or higher is ideal for loan approval.
- Business history: Being in business for at least 6 months can improve your chances.
- Business plan: A well-prepared plan is crucial for most loan applications.
- Collateral: Some loans may require you to secure the loan with personal assets.
- Experience: Lenders might want to know your experience in your business field.
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. There are different types of small business loans. When applying for a startup loan, here is what to expect with each type of loan.
SBA microloans
These can be tricky to apply for through traditional banks, but reliable lending marketplaces may simplify the process. SBA Microloans are great for startups that need a small amount of funding—up to $50,000. These loans can help you buy equipment, inventory, and supplies or cover working capital needs. However, you can’t use them to pay off existing debts or buy property. The loan term can last up to six years, with interest rates between 8% and 13%. Applying can be a bit demanding, as lenders will look closely at your business plan and financial details.
Business credit cards
These are usually easy to apply for, requiring only a federal tax ID or Social Security Number. Business Credit Cards provide easy access to funds for various business needs and help manage cash flow. Credit limits vary, but they can go up to $50,000 or more depending on your credit score. These cards often offer rewards like cashback and other perks, making them a convenient option for small businesses. While you usually won’t need collateral, some issuers might ask for a personal guarantee.
Friends and family or crowdfunding
Your relationships and the creativity of your idea play a key role here. Friends and Family loans and crowdfunding are common ways to fund startups using your personal network or online platforms. Friends and family loans rely on your relationships, while crowdfunding uses online platforms to connect with potential supporters. Your business idea and personal connections play a big role in these options’ success. Crowdfunding can also help you market your business and gather feedback.
Equipment financing
This option can be quick and easy since the equipment serves as collateral. Equipment Financing lets you borrow money to buy the equipment your business needs. The equipment itself serves as collateral for the loan, which lowers the lender’s risk. This option is especially helpful for businesses in fields like manufacturing or construction. The loan term usually matches the life of the equipment, making payments manageable as the equipment helps you generate income.
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.
How Forwardly can help?
Take control of your startup’s finances with Forwardly! Our platform helps you start off on the right foot managing your new business’s cash flow by streamlining your accounts receivable and accounts payable from the jump. Pay your bills for free and get paid quickly and affordably. With Forwardly, you can focus on growing your business while we handle the rest. Start optimizing your finances today!
