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How to Get a Loan to Start a Business

How to Get a Loan to Start a Business

Traditional lenders may be hesitant to finance a young company with no business history and no proven revenue. Startups have a better shot at securing financing when the founders do some preparation before starting their search.

To get a startup business loan, you’ll need to follow the following steps:

Review your startup costs

Get your documents and registrations together

Check your qualifications

Choose the right startup loan

Here are four common types of startup loans:

Equipment Financing

Business Line of Credit

Business Credit Card

Credit Line Builder

Let’s get started.

1. Review the Startup Costs You Need to Cover

Here are some common costs that come with starting a business:

Equipment purchases, like cash registers, machinery, and vehicles

Technology purchases, like computers,

tablets, and printers

Initial inventory purchases

Permits and licenses, like city, country, and state licensing

Initial office supplies

Business furniture

After you pay these initial costs, you’ll have ongoing expenses—like taxes, rent or mortgage payments, employee payroll, etc.—that’ll you need to cover as you grow your startup.

Once you have a solid understanding of how much funding you need, you’re ready to pursue your startup funding options.

2. Get Your Documents and Registrations Ready

Usually, when you’re applying for a business loan, lenders want to you to demonstrate months or even years of steady revenue. That’s not possible for a young company.

Instead, startups will need the following materials to apply for financing.

A Business Plan

Your business plan should include your financial projections—future sales, profits, income, cash flow, and so on—and more qualitative goals for your business. How will you make a unique and important contribution to the market you’re in? Where, and how quickly, will your business grow?

If you haven’t made one yet, here is a business plan template you can use to put one together.

Licenses, Registrations and Permits

Before they fund your startup, lenders will want to see that you’ve taken the steps to make your business official.

This means that you’ve officially filed your business with the necessary parties and have all the required licenses and permits needed to operate your business.

Other Documentation

Business loan requirements will vary from lender to lender, but there are some documents that almost every lender will require. These include:

Bank statements.

Income statements, if you have them.

Your personal tax returns.

Your resume.

Your financial projections.

3. Check Your Qualifications for a Startup Loan

Once you have your paperwork in order, you must check to see if you can actually qualify for the loan you need. That means looking at the following criteria.

Your Personal Credit

As a startup founder, you won’t necessarily have any established business credit history to prove your creditworthiness. So, lenders will look at your personal credit score as a way to gauge how reliable you’ll be as a borrower.

Banks will generally offer financing to borrowers with credit scores of 680+. Anything below that and you’ll likely be a better fit for a non-bank lender.

Before you get too far into your search for getting a startup business loan, make sure you know where your credit score stands. If it isn’t where you want it to be, you can take steps to improve it.

Your Cash Flow

Cash flow measures the cash coming in and out of your business. As a startup, you might find that more cash flows out than into the business. That’s a common problem many newer businesses face.

It’s important to look into the strength of your cash flow before you take out financing to grow your startup. Many startups only qualify for daily or weekly payment loans, which can put a real dent in cash flow. If you have strong cash coming in each week, then you may be fine covering frequent payments. But you don’t want to end up in a situation where you can’t cover your loan payments because your cash flow is weak.

Revenue and Time in Business

In the eyes of a small business lender, the more time you have in business, the better.

Many online lenders also require a minimum annual or monthly revenue to qualify for any type of loan. They want to make sure you’re bringing enough money in on a regular basis to cover your loan payments.

When it comes to startup loans, you might have limited options at first because you haven’t been in business long enough to start making any money.

If you struggle to find a startup loan and you can wait to apply for financing, consider doing so. You’ll have more options available to you if you have a year or even six months in business.

Content created and supplied by: KwadwoSarfoGh (via Opera News )

Business Line of Credit

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