Getting a business loan for a startup is harder than borrowing for an established company, but it is far from impossible. Lenders worry about new businesses because there is no track record of revenue to prove you can repay. The good news is that several loan types are designed for new businesses, and a strong application can make up for a short history.
This guide explains your funding options, what lenders look for, how to apply step by step, and what to do if you are turned down.
Can a Startup Get a Business Loan?
Yes. Startups can qualify for financing, but the approval often depends more on you than on the business. Since the company has little or no history, lenders typically focus on your personal credit, your industry experience, your business plan, your collateral and how much of your own money you are putting in.
Expect to be asked for a personal guarantee, a down payment or collateral. Also expect smaller amounts and higher rates than an established business would get.
Business Loan Options for Startups
1. SBA loans. The U.S. Small Business Administration does not lend directly. It guarantees a portion of loans made by banks and other approved lenders, which makes them more willing to work with newer businesses.
- SBA microloans are small loans, up to $50,000, offered through nonprofit intermediary lenders. They are a common fit for very early-stage businesses.
- SBA 7(a) loans are the most popular program and can be used for working capital, equipment and more. Startups can qualify, but lenders usually want strong personal credit, industry experience and an owner cash investment.
- SBA Express loans offer a faster turnaround for smaller amounts.
SBA loans often have lower rates and longer terms than other options, but the process can take weeks or months. Check SBA.gov for current limits and requirements.
2. Equipment financing. If your startup needs machinery, vehicles or technology, the equipment itself serves as collateral. This makes approval easier for new businesses, although a down payment is common.
3. Business line of credit. A line of credit lets you borrow up to a limit and pay interest only on what you use. Startups may qualify for smaller limits, especially with online lenders, and the limit can grow as your business does.
4. Business credit cards. A business credit card can cover early expenses and help you build business credit. Approval depends mostly on your personal credit. Be careful with high interest rates if you carry a balance.
5. Personal loans. Some founders use a personal loan to fund the early stage. It can be easier to get than a business loan, but you are personally responsible for the debt, and the amounts may be limited.
6. Online lenders. Online lenders often accept newer businesses and approve faster than banks. The tradeoff is usually higher costs and shorter terms. Compare the APR, not only the monthly payment.
7. Alternatives to loans. Depending on your situation, you may also consider grants, crowdfunding, investors, friends and family, or community development financial institutions (CDFIs), which focus on underserved borrowers and new businesses.
What Lenders Look for in a Startup
Every lender has its own standards, but most review the same core items:
- Personal credit score. This is often the most important factor for a new business. Many lenders prefer good credit, commonly in the high 600s or above, though some online lenders accept lower scores at a higher cost.
- Business plan. A clear plan shows how the business will make money and repay the loan.
- Financial projections. Lenders want realistic revenue and expense forecasts, usually for the next one to three years.
- Industry experience. Experience in the field you are entering can reassure lenders significantly.
- Your own investment. Putting your own money into the business shows commitment and reduces lender risk.
- Collateral. Assets such as equipment, real estate or savings can strengthen your application.
- Debt and cash flow. Lenders look at your existing debts and your ability to handle new payments.
How to Get a Business Loan for a Startup: Step by Step
1. Decide how much you really need. Add up startup costs such as equipment, inventory, licenses, marketing, rent and working capital. Include a cushion for the months before revenue arrives. Borrowing too little can leave you short, and borrowing too much increases your risk.
2. Check your personal credit. Review your credit reports for errors and see where your score stands. If it is low, consider improving it before you apply by paying down balances and making payments on time.
3. Register and set up the business properly. Form your LLC or corporation, get an EIN from the IRS, open a business bank account and keep personal and business finances separate. This shows lenders you are serious and makes your paperwork cleaner.
4. Write a strong business plan. Cover your product or service, target market, competition, marketing approach, management team, funding request and financial projections. For SBA and bank loans, this is often essential.
5. Gather your documents. Typical requirements include:
- Government-issued ID
- Business plan and financial projections
- Personal and business tax returns (personal returns for newer businesses)
- Personal financial statement
- Business formation documents and licenses
- Bank statements
- Resume or description of your experience
- Information on collateral
6. Match the loan to your needs. Use equipment financing for equipment, a line of credit for flexible cash flow, and an SBA loan if you can wait for lower costs and longer terms. Choosing the wrong product can cost you money.
7. Compare multiple lenders. Look at banks, credit unions, SBA lenders, CDFIs and online lenders. Compare the APR, fees, term, down payment, prepayment penalties and whether a personal guarantee is required.
8. Consider prequalification. Many lenders offer prequalification, which gives you an estimate of your terms without a full application. Ask whether it uses a soft credit check, which does not affect your score.
9. Apply and respond quickly. Submit complete, accurate information. Delays and missing documents are among the most common reasons applications stall.
10. Review the offer before signing. Read the full agreement, calculate the total cost of the loan and confirm every fee. If something is unclear, ask questions or have a professional review it.
How Much Can a Startup Borrow?
It depends on the loan type, your credit and your finances. Microloans are limited to smaller amounts, equipment financing depends on the cost of the equipment, and lines of credit for new businesses often start small. Larger amounts, such as those available through SBA 7(a) loans, usually require strong credit, collateral and a solid plan. Lenders may also expect you to contribute your own funds toward the total project cost.
Tips to Improve Your Chances of Approval
- Build your personal credit first. Pay bills on time and reduce credit card balances.
- Start with a smaller amount. A smaller request is easier to approve, and repayment can help you build business credit.
- Offer collateral or a co-signer. This reduces the lender’s risk.
- Show relevant experience. Highlight your background and any prior success in the field.
- Bring in customers early. Signed contracts, letters of intent or early sales prove demand.
- Keep finances separate. A business bank account and clean records make you look more credible.
- Work with a local resource. Small Business Development Centers (SBDCs) and SCORE offer free or low-cost help with business plans and loan applications.
Common Reasons Startups Are Denied
- Low personal credit score
- Weak or unrealistic business plan and projections
- No collateral or personal investment
- Too much existing debt
- Lack of experience in the industry
- Incomplete or inaccurate application
If you are denied, ask the lender for the specific reason. Then fix the issue, consider a different loan type, or apply with a lender that is more open to new businesses.
Watch Out for Predatory Lenders
New business owners are often targeted by lenders offering fast approval with few questions. Be careful with extremely high costs, pressure to sign quickly, upfront fees before approval and unclear terms. Merchant cash advances, in particular, are often much more expensive than they first appear. Always compare the full cost before accepting.
Frequently Asked Questions
Can I get a business loan with no revenue?
It is possible, but harder. Lenders will rely heavily on your personal credit, collateral, business plan and your own investment. Equipment financing, microloans and business credit cards may be more accessible options.
What credit score do I need for a startup business loan?
It varies by lender and loan type. Banks and SBA lenders usually prefer good credit, while some online lenders accept lower scores at a higher cost. A stronger score generally means better rates and terms.
Do I need collateral for a startup loan?
Often, yes, or at least a personal guarantee. Some products, such as equipment financing, use the purchased asset as collateral.
How long does it take to get a startup loan?
Online lenders may fund in a few days. Banks and SBA lenders often take several weeks or longer.
Is it better to use a personal loan or a business loan?
Business loans separate your business and personal finances and can help build business credit, but they may be harder to get. A personal loan can be easier to obtain, but you carry the risk personally.
Can I get a startup loan with bad credit?
It is possible, but your options will be more limited and costlier. Consider equipment financing, a co-signer, microloans or CDFIs, and work on improving your credit when you can.
The Bottom Line
Getting a business loan for a startup takes preparation, but there are real options for new businesses. Strengthen your personal credit, build a solid business plan, show your own commitment and compare several lenders before you decide. The right loan can help your business get off the ground. The wrong one can put heavy pressure on it, so understand the full cost and make sure you can afford the payments.
This article is for informational purposes only and does not constitute financial, legal or tax advice. Loan terms, eligibility and SBA program rules vary by lender and change over time. Consult a qualified professional before making financing decisions.