How to get a startup business loan

If you are one of the 1.3 million people who filed applications for new businesses in the first quarter of 2021, congratulations. Entrepreneurs like you are proving that the post-pandemic economy holds plenty of promise. Now, before you launch, get a small business start-up loan. Yes, a loan. 

Business equity is great. And profits, the goal. But even the hottest start-ups can struggle with unexpected blips like inventory shortages, equipment repairs, and unforeseen market fluctuations. Why tie up your early revenue stream with these issues? A well-structured loan can help you weather these short-term storms without neglecting your business’s long-term growth. Here’s what you need to know. 

Put your dreams on paper

Before connecting with a potential lender, outline your best case in writing. Requirements vary by loan source, but here are some items you’re bound to need:

• A business plan. How do you plan to build your business? If you’ve never written one before, don’t let that stump you. The SBA has a free business plan guide. 
• A financial plan. Demonstrate your business savvy by telling potential lending partners how capital will be routinely managed. You should also state the specific amount you want to borrow and outline your plans for repayment.  
• A credit report. This will be used to determine your credit risk. Don’t count yourself out if your rating isn’t stellar. Many of the lenders who cater to start-ups have flexible criteria. 
• A collateral statement. Many lenders will ask you to use a home, car, business inventory, or other property as collateral for your loan.

Related: How to qualify as a small business

Find the right loan

The Small Business Administration (SBA) is a great place to start. The SBA works with intermediary lenders to offer borrowers insured business loans from $50,000 to $5.5M. Businesses can access SBA’s Lender Match, which uses an online form to collect information about your business. Fill out that form, and Lender Match will send you a list of approved lenders from your community. All of them are authorized to negotiate a SBA-backed loan with you.  
Keep in mind, your loan application must be approved by the lender. Interview potential lenders to see who is best suited to your needs, and submit your application directly to the lender.

All SBA-backed loans offer some combination of business-friendly terms, including reasonable interest rates, flexible overhead conditions, low collateral requirements, or continued counseling and education to support your business’s success.

Here are three of the most popular options:

• The 7a Loan program offers up to $5M in short-and long-term working capital that can be used for a number of purposes, including furniture, fixtures, supplies and real estate. 
• The 504 Loan program provides up to $5M in long-term, fixed rate financing for major fixed assets that promote business growth and job creation.
• The Microloans program provides loans of up to $50,000 to help businesses start up and expand. Shop around 

In addition to the SBA, there are numerous private lenders who will compete for your business. When reviewing their products, keep in mind your unique needs as a new business owner. What are their short- and long-term rates, their fee structures, and their policies on prepayment penalties, grace periods, and the lender’s ability to demand full repayment?

Fundera lets you compare offers from multiple lenders when you fill out a single application. They also provide a specialist to help you decide which offer is best for your business. 

Check out grants

You may think that the competition for free money will be too fierce. Think again. Many grants are designed to assist specific groups. Others focus on stimulating different sectors of the economy. If you or your business qualify, why would you let a grant application stand in the way of getting fresh capital? Don’t know where to begin? Try Grants.gov. It has a huge database of grants administered by government agencies.

And the SBA is continuing to help COVID-impacted businesses rebound with resources like the Sheltered Venue Operators Grant, a part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.

Related: 15 Small business grants all women entrepreneurs should apply for

Consider crowdfunding

Crowdfunding sites like GoFundMe, Kickstarter, Indiegogo and RocketHub can offer unprecedented returns for struggling start-ups. After all, you’re asking literally everyone in the world to donate a little bit to your business. Launch a campaign that goes viral, and you’re all set. Before you jump in, check out this overview of crowdfunding opportunities. 

Friends and family 

The unwritten rule about accepting financial help from your loved ones is simply this: put it in writing. Sure, they loved your idea, and they love you. But they also have some affection for that cash they lent you.  
Or was that a gift? Maybe it was both. Before you accept a loan, a gift, or a bid for equity from your beloved Uncle Fred, write up a formal agreement that defines all your terms. The folks at Onedeck have put together a seven-point checklist that will help you touch on the important points.

And make sure you’ve got business insurance that will back you up, whatever your size. You can get a fast, free quote in minutes, and be covered the same day.