5 Essential Guide to Obtaining a Business Loan For Startups

If you’re building a company from the ground up, you’ll need funding—and those who already own businesses know how difficult it can be to find. There are plenty of options out there, and research will help you find the right product. In our guide, we offer five essential loan tips for startup owners and entrepreneurs.

Widen the Search

When obtaining a business loan, most people envision big banks, but there are other choices, including online lenders. While banks have strict lending criteria—and startups lack the liquidity, finances, and credit history big lenders look for—online lenders are giving startup owners the financing they need to get off the ground. These lenders offer a range of products, from equipment financing to lines of credit, so any business owner can find a loan that meets their needs.

Choose the Right Loan Type and Term

Because there are so many online loan types available, it can be hard for first-time borrowers to find the right fit. Startup owners often need immediate cash access, and business lines of credit can give them that access within one business day. On the other hand, a business owner opening a new location may be better served by an equipment loan. Weigh the benefits and drawbacks of each loan offering and choose the one that meets your company’s financial needs.

Decide What Affordability Means to You

Before signing on the dotted line, be sure you understand the loan’s term-wide cost—and ensure you can afford to repay it. Start by dividing the company’s monthly income by the expected monthly loan payment. If the answer exceeds one, you’ll likely be able to make timely payments.

Know the True Cost of the Loan Before Applying

When considering a startup loan, most business owners look at the interest rate—but there are other costs to think about. There are fees at every stage, from origination to closing, and they add up quickly.

As you evaluate loan products, pay attention to the APR or annual percentage rate. It provides a more accurate estimate of the total cost of the loan, and knowing it prevents costly surprises down the road. For startup owners, a little knowledge is a powerful thing.

Gather Application Materials and Documents Early

Once you’ve considered the benefits and risks of each loan type, it’s time to start the application process. Every lender’s informational requirements are different, as are their criteria. Even the most lenient lenders won’t finance an at-risk startup, so they’ll want to see your company’s financial records.

Increase your chances of approval by preparing bank statements, profit and loss statements, and balance sheets. As a startup owner with a limited corporate credit history, be prepared to show your personal credit score and financial statements. Again, every lender is different, and it’s best to research each lender’s documentation requirements before starting the application process.

Getting a Loan as a Startup Owner Doesn’t Have to Be Difficult

There’s an ever-lengthening list of funding options for startup owners and entrepreneurs, especially in the online lending sector. With a little bit of preliminary research, an understanding of your personal and business financial situations, and the other tips on this list, you will find a loan that meets your company’s needs and fits your plans.