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How to Secure a Startup Business Loan?

What do Apple, Whole Foods, Amazon, Dell, and Starbucks all have in common? Each is a multibillion-dollar corporation that started out small and needed a major loan in its early stages to get off the ground. Yes, even businesses with industry-revolutionizing potential need start-up money to get the ball rolling. And your business is no exception.

But how do you get your hands on this prized start-up money and financing your business needs to thrive? Acquiring a start-up business loan isn’t easy, but thankfully, there are several viable options that you can try. Read on for our comprehensive guide on how to secure a startup business loan, and learn the different types available to you and your business.

Before You Start Your Search, Run Through This Checklist

No investor is going to throw their hard-earned money blindly at a cause with little potential and several red flags. Thus, you want to present the most convincing argument possible for why you deserve their investment. It’s impossible to build a startup with no money, which is exactly why you need to put your business in the best light possible when talking to potential investors.

Before you ask anyone for so much as a dime, get all your ducks in a row by doing the following:

Master Your Business Plan

Anytime you ask someone to borrow money, the first question they will ask is, “what do you need it for?” That’s why your business plan needs to shine. It’s your first and likely last chance to show a lender what you and your business are all about, and how they can benefit in the long run by backing you today.

Every business plan should include:

  • Executive Summary – This 1-4 page opening document is a detailed yet concise summarization of the key points your plan will convey. You want this executive summary to be thorough enough to stand on its own in explaining your business’s goals.
  • Business Overview – Think of this as your start-up’s future Wikipedia page. It should include what your startup does, its legal structure, the history of how the startup came into existence, where it’s located, and your methods for conducting business.
  • Operations Plan – Here’s where you provide an explanation of your start-up’s physical setup and how it will function i.e. the specific tasks you and your employees will carry out in order to fulfill your respective responsibilities.
  • Market Analysis – Use this space to define your target audience. The more graphs, charts, and cold hard data related to your target audience you can provide, the better.
  • Products and Services – Whether you sell physical products or provide services, use this section to describe each product/service on your “menu” in comprehensive detail.
  • Sales and Marketing – This is where you outline the prices for your products and services, and explain how you landed on that price point. You should also include what type of advertising efforts you plan to use to reach your audience.
  • Competitive Analysis – Here’s where you look at yourself in the mirror, so to speak, and provide an honest assessment of where you stand compared to your competition. And if you feel that your competition is ahead of you, outline how you plan to change that.
  • Management Team – This section introduces your potential investors to your supporting cast. Be sure to include each person’s credentials and relevant background.
  • Financial Plan – While the previous sections of your business plan are devoted to advertising your grit and creativity, your financial plan is where you start talking turkey. Let your investors know how much money you think you’ll need to get started, how much will sustain you over the next 2-5 years, and most importantly, what you plan to use their funds for.
  • Projections – Conclude with charts indicating what kind of revenue numbers you expect to achieve over the next 2-5 years.

Maximize Your Credit Score

The vast majority of people starting a small business are unlikely to have any sort of business history or financing records. So how are you supposed to get the funds and prove that you’re a reliable candidate? This means that the only evidence potential investors really have as to your business acumen and reliability with money is how well (or poorly) you’ve handled your personal finances in the past. This will determine your financing options for your business. 

Ideally, you want your credit score to be above 700. Most investors affiliated with the bank will view a credit score of 600 as a base level number. If you have a bad credit score, it’s almost certain that a traditional bank will pass you up.

If you’re right near 600 but not quite over the hump, here are two tips that can give your credit score the pivotal boost it needs:

  • Pay Off Debts Using “the Snowball Method” – Many people mistakenly think that the best way to improve their credit score is to pay off all of their debts at once with one lump sum. But in fact, it actually benefits you to pay minimum amounts on each of your debts in a timely fashion. Often referred to as “the snowball method,” this generates more evidence of you making payments on time, which boosts your credit score.
  • Check Your Credit Report for Mistakes – According to a report issued by the Federal Trade Commission, roughly 1 in every 5 credit reports will have a mistake in it. And these mistakes could hurt your credit score dramatically. Be sure to check your report and bring any mistakes to the immediate attention of your credit report provider.

My Business Plan and Credit Score Look Great. What’s My Next Move?

If both your business plan and credit score are in excellent shape, you put yourself in a good position to secure a start-up capital within the walls of a traditional financial institution.

Here are a few options to consider pursuing:

SBA Microloans

Microloans come courtesy of the Small Business Administration (SBA). But contrary to what the name suggests, the SBA doesn’t issue microloans directly to you, but rather uses traditional financial institutions and non-profit lenders as a middleman.

The SBA microloan program provides loans ranging from $500 to $50K, with the average landing at about $13K. 

  • Pros – Because microloans are ultimately issued by traditional lenders, the attractiveness of the terms and conditions you receive is unrivaled. 

Additionally, several lenders who are partnered with the SBA microloan program are mission-oriented lenders with documented histories of favoring small, minority-owned businesses, especially ones that operate either in local communities or in disadvantaged neighborhoods. They’re likely to show you the same level of support if they can.

  • Cons – The SBA microloan application process can be a long and harrowing one, as SBA-partnered lenders have notoriously strict approval requirements. It requires you to provide extensive documentation, which means that approval can take a few weeks to process.

Also, if you envision your start-up as a large-scale operation, the $50K ceiling may not be high enough to get you started.

Business Credit Cards

If you’re a particularly green entrepreneur (i.e. less than six months into your startup efforts) you probably won’t have the credentials just yet to secure a loan in lump sum form. You may, however, be able to obtain a loan in the form of a business credit card.

As long as you’re quick on the trigger with paying your balance every month, establishing a line of credit is a huge advantage for helping your business cover early start-up costs and “hair on fire” emergency expenses.

  • Pros – Unlike microloan applications, you’ll get an answer on your business credit card inquiry almost instantly. They also don’t require any collateral as a down payment. And best of all, business credit cards let you play things by ear and borrow as much or as little as you need depending on a month-to-month basis.
  • Cons – At some point, the APR rates on business credit cards crash the party, and if you’re behind on payments, ruin it. Even for cards that have a 0% introductory rate (the keyword being “introductory”), the carriage eventually turns into a pumpkin.

Small Business Grants

If you’re feeling lucky, another option is to try applying for a small business grant courtesy of either a non-profit or government organization.

  • Pros – Because this type of loan is provided by the US government and nonprofits, it essentially equates to free money with no strings attached.
  • Cons – For the same reason, small business grants are extremely difficult to secure. They’re typically reserved for other nonprofits, mission-oriented start-ups, or start-ups that focus on serving the local community. For everyone else, good luck.

What if my Credit Score is Not That High?

Is your credit history not as high as you would have liked? If your credit score is below the ideal 600-plus marker, don’t worry. You still have the following funding options at your disposal:

  • Online Lenders – Online lenders have significantly less stringent application standards than banks do, which makes your bad credit score much less of an obstacle. But the easier road comes at a cost: online lenders tend to charge insanely high-interest rates. 
  • Family and Friends – Your family and friends are always there for you to encourage your dreams and support you in times of need. Why should your start-up aspirations be any different? It’s normal to turn to the people who love you the most. And contrary to loans from standard financial institutions, neither your family nor friends are likely to charge you interest on their investment. 

Keep in mind, however, that when you accept a loan from your loved ones, it’s not just their money that you’re putting on the line; it’s also your relationship.

  • Crowdfunding websites – If you’re not comfortable asking for a loan from the people you know best, try asking people you don’t know at all through crowdfunding platforms like Kickstarter. 

On the downside, the roof for how much you can raise from crowdfunding sites tend to be pretty low. But who knows? You might strike a chord with people. And even if you raise limited funds through crowdfunding websites, at least the people who donated aren’t expecting any return on their investment and there are no repayment terms.

No matter what type of start-up you’re trying to launch, having upfront capital is essential to set it in motion. Sometimes the best thing to do is to hire a startup lawyer to help you weigh out all of your options. And more likely than not, that capital will have to come courtesy of a loan.

Naturally, having a stellar business plan and credit score gives you the best chance of securing a start-up loan. But with all the options available in the start-up loan landscape today, the door remains open for every aspiring entrepreneur. For further questions regarding small business law, visit our website or call one of our experienced attorneys. 


“This blog article is for informational purposes only, and is not a substitute for client- and fact-specific legal advice from a qualified attorney.”



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