Intro: Start-Up Business Loans | 6 Tips on How to Get a Loan to Start a Small Business


You’ve got your terrific business idea, and you are ready to rumble. There’s only one problem: you don’t have the capital to get it off the ground. You need to figure out how to get a loan to start a business and look for small business start-up loans to get the ball rolling.

Small businesses rest at the foundation of America’s entrepreneurial spirit, and start-up loans for small businesses help keep the idea bouncing, the money flowing, and the economy moving. If you have a great idea—and you need a bit of cash to get started—there are avenues for you to pursue in order to get loans to start a business.

Economic growth through small businesses is so vital that there is an independent agency with the federal government in charge of protecting and cultivating American small business. The U.S. Small Business Administration (SBA) has a mandate to encourage competition and free enterprise and to protect the interests of small businesses. Business start-up loans are considered vital tools for economic growth and prosperity.

start up business loansImage source: Bigstock

Small businesses are considered businesses with 500 employees or fewer, and they serve as a vital component of local economies. Small businesses make up 99.7 percent of employer firms according the U.S. Small Business Administration.

This article on how to get a loan to start a business will serve as a valuable resource for aspiring small business owners.

It will go through what is required to get start-up loans for small businesses, the process of applying for loans for starting a business, and other details you need to know about loans for small business start-up costs. Most importantly, this article will provide helpful tips for getting a loan to start a business.

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1. Understand What Banks Are Looking For

Looking for a convenient start-up loan for small businesses? Sorry to break it to you, but it is not as easy as walking into a bank and saying, “Do you have some start-up business loans you want to get off your hands?” Rather, you need to think long and hard about what it is that banks are looking for when they are deciding who to extend small business start-up loans to.

Banks are putting their money on the line by offering loans to start a business, and while they definitely have the potential to make a nice sum of money through interest from start-up loans for small businesses, they want to make sure you are capable of paying back the initial amount plus the interest. How do they do this? By evaluating you as a person and as a business owner.

Institutions will differ in how they evaluate your situation, but generally speaking, they will be making sure that you have a sound business idea and a decent credit score. Your credit score is calculated based on your credit history, which details the timeliness of your payments and the size of your debt. If you want to know how to get a loan to start a small business, know that your credit score plays a crucial, make-or-break role.

If you are working with a business partner and looking for start-up business loans, keep in mind that your partner’s personal credit score will also play a role in determining your trustworthiness for credit. Additionally, banks will also evaluate the soundness of your business idea, its sustainability, and the personal experience of all the partners involved before handing out loans to start a business.

Another important factor that the bank will consider is the availability of collateral. Part of figuring out how to get a business loan to start a business is understanding that you are putting up all of your worldly possessions as back up.

If you are unable to pay back the loan, everything from your car to your home is up for grabs. While it is possible to still get start-up business loans without the entirety of the amount securitized, banks will be more willing to extend credit if they know you have assets that can be liquidated in order to pay them back.

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2. Prepare and Organize Your Documentation

If you think you hate paperwork, wait until you go through the process of looking for start-up business loans. You had better believe asking somebody for several thousand dollars to fund your business venture is going to require a lot of documentation. They will want proof that you are doing what you say you are going to do, are the trustworthy and honorable individual you claim to be, and that your finances are in order before trusting you with a start-up loan for small businesses.

Your financial institution will want documentation of your personal and business credit history. Keep in mind that when you are applying for small business start up loans, banks are not just interested in your financial success as an individual, but as a business owner as well. If you have previously owned a business, they will want to see how that business panned out before extending you additional loans to start a business.

Your documentation could range from your financial statements to your detailed business plan. The idea is to be fully prepared when searching for start-up business loans. Gather everything you believe will be helpful in proving that you are a suitable and trustworthy candidate for a loan and demonstrates the potential success of your business.

bad credit business loans

Image source: Bigstock

Additionally, coming prepared when looking for small business start-up loans makes a positive impression on the person deciding whether to extend you credit. When you are looking for loans to start a business, people are not only judging your financial history, but the way you present yourself as well.

Coming across as organized, resourceful, and on top of your business (even before it has received funding) can only help your chances of acquiring loans to start a business.

Be diligent. Loan applications are turned down all the time simply because a requested document is missing, forcing you to go through the entire process again. If you want start-up business loans as soon as possible, be on top of the requirements in order to make the application process run as smoothly as possible.



3. Create a Detailed Business Plan

Simply put, a business plan demonstrates what your business is and how it is going to achieve its goals (the obvious goal being to make money). How well you manage to convey this information in this business plan can make or break your chances of getting small business start-up loans.

If you want to know how to get a loan to start a business, you had better not forget your business plan. Some financial institutions will not even continue a conversation about giving you start-up business loans if you do not have a business plan to show them, which makes sense. If you are asking for a small business start-up loan, you need to have a clear explanation for what you are planning to do with the money and how you intend to turn a profit.

Humans are idea machines. People are constantly coming up with ways to make money or business opportunities, but the reason a lot of them fail is a lack of planning and follow-through, which is why people want to see business plans before extending small business start-up loans.

In order to make a business work and pay back your start-up business loans, you need a proper understanding of what is and is not feasible, where you should keep your focus in the early days, how to target customers, and how to make the business sustainable.

There are a lot of issues that can be identified before they become full-blown problems through the process of drawing up a business plan.

Do you want to know how to get a loan to start a business? If you have not drawn up a business plan, you are getting ahead of yourself. Business plans don’t just help you plan your success—they are also capable of showing you if your business idea is doomed to fail. It’s not fun, but it’s very helpful.

What should you include in your business plan to convince banks to give you start-up business loans? The U.S. Small Business Administration provides a helpful outline of what information should be included in your business plan in order to secure small business start-up loans:

  • Executive summary: The summary provides an at-a-glance look at your company’s profile, goals, and your entire business plan.
  • Company description: This tells the reader about your business and what sets it apart from others similar businesses in the industry.
  • Market analysis: This is a very important step that people often do not want to look into. It is crucial for you to research the competitors in your industry to ensure there is not somebody doing the exact same work as you that could possibly leave you without customers.
  • Organization and management: The organization section provides an outline of how you will structure and manage your company.
  • Service or product line: This section answers specific questions like what you sell, why customers will care about it, and what the product’s life cycle is.
  • Marketing and sales: What is the marketing strategy for this business? How will you get the word out to ensure people actually know about your product or service?
  • Funding request: This section outlines whether you are seeking funding for your business like start-up business loans and any other necessary details related to that endeavor.

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4. Provide Financial Projections

Financial projections are vital for securing start-up business loans. They demonstrate how much money you realistically think your business will make. Typically, when people are looking for additional funding for an existing business, they use their previous financial statements to make projections about their future earnings.

If you are starting a new company and looking for small business start-up loans, this can be difficult because your company has no previous history of its own to leverage.

But notice we said “difficult,” not “impossible.” You can still provide a relatively educated guess about how much money your business will make. Do some research into your industry and look for financial statements from businesses similar to yours. Making the effort to do this research and create sound projections will make you a more attractive candidate for start-up business loans.

Not only does it provide some numbers for your potential creditors to consider, it also positions you as someone who is serious about doing research and making sure the business idea is sound.



5. Start with Banks Where You Are Already a Customer

Starting with institutions you already bank with may be a helpful way to get the small business start-up loan process moving smoothly.

While you will still be required to go through the same steps needed to have start-up business loans serviced, you will likely gain access to higher customer service, additional care and explanations of the process, and, at least in the beginning, work with people you are familiar with.

So long as you have had positive relations and payments with the bank, they will already have access to your products and accounts that demonstrate your reliability.

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6. Consider Your Friends, Family, and Professional Network

The difficulty with securing start-up business loans is that creditors are hesitant about the prospects of a new business. Nine out of ten start-ups fail—that is not a very comforting statistic.

Even if you are opening a brick-and-mortar shop, there are a lot of struggles small businesses face in their early days. As a result, banks would rather fund growth as opposed to launching, making it very frustrating for those with entrepreneurial dreams to convince banks to give them a small business start-up loan and consider them a risk worth taking.

One option is to look to your friends, family, and colleagues for funding. They are the people who have heard the most about this idea, know your trustworthiness and dependability through personal experience, and know whether you are a hard worker. Turning to them for start-up business loans may be your best bet in terms of getting the funding you need.

While your friends and family may fund you because they believe in you, it is important to treat the transaction the same way you would when going anyplace else for start-up business loans. Treat it like an official loan process. Show them your financial projections and outline how you plan on turning a profit. Additionally, give them a schedule for how you plan to pay them back and how much interest you will give on your small business start-up loans, if applicable.

Even though those closest to you will be more forgiving of business shortcomings or late payments, they are also the easiest to offend through miscommunication.

Make sure you work out a formal process or payment schedule for the start-up business loans so that they are not put off by what they may see as slow growth. You will need time to get the business going, so in order to ensure no one feels cheated, practice effective communication.

Additionally, keep all of your investors—loved ones or otherwise—abreast of your business progress so that they have an understanding of where the small business start-up loans they gave you are going. By getting your details in order, drafting a business plan, and understanding your bank’s needs, you can be well on your way to getting start-up business loans.

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