A startup business loan can help propel your new venture from The Little Engine That Could to “full steam ahead” in a matter of months.

But for a business founder with multiple to-dos, finding the right lending option can be challenging, especially if your company doesn’t yet have an established credit history.

In this blog, we’re going to walk you through 4 steps to do in order to secure a business loan for your startup, and give you a few loan alternative ideas as well.

Let’s jump in!

Work with an accountant

First things first, find a great startup accountant.

We mean it.. a qualified startup accountant can help take most of this off your plate. 

Identifying your company’s unique financing needs and circumstances is crucial to determine the most cost-effective loan option for your overall business strategy.

This process usually spans the breadth and depth of your business, from the different expense items, to cash flow and onto revenue projections.

You and your accountant will develop a sound analysis of the various forms of credit available along with a workable repayment schedule.

You can also lean on your accountant’s knowledge and experience to create a winning loan proposal.

Cementing a solid loan proposal along with the evidence required is half of the battle.

Document requirements will vary by lender, and your accountant can make sure everything is in place for a smooth application process.

Determine how much you need

It may sound basic, but working out how much you need and where the money goes is essential to securing a loan.

Calculations and allocations can differ greatly by industry and business type, and some common expenses include:

• Payroll
• Office space
• Inventory
• Equipment, furniture and supplies
• Utilities and other overheads
• Marketing

What’s integral is to assess the required runway for each expense.

For instance, how many months of payroll should a loan support, or how long should a marketing campaign run before you see your first users?

Your lender is going to want to know exactly how much you need, exactly where it’s going, and how long it will last you until you need (or don’t need) more.

Work through your business loan options for startups

There’s a plethora of business loans out there, but not all cater to startup businesses.

Some only serve companies with mature revenues, while others could impose a sizable down payment.

When evaluating whether a loan is suitable, it’s also vital to consider factors such as the interest rate, repayment terms and need for collateral.

Here are several borrowing options for startups that you should consider:

SBA Loans

SBA loans are so-called because they are partially guaranteed by the U.S. Small Business Administration (SBA). The SBA works with a network of lending providers, typically banks, to extend financing to small businesses on preferential terms.

Different loan programs are available, such as 7(a), 504 and microloans.

Borrowing amounts range from under $50,000 to $5 million, with competitive interest rates of 2.25% plus a base rate to 13%. 

Another benefit of SBA loans is enhanced credit access for business activities that banks may reject otherwise, like exports and real estate purchase.

Term loans

Term loans usually come from banks, credit unions and online lenders. Businesses often tap into these for a short-term purpose or one-off project, like buying equipment or to cover a seasonal cash crunch.

Annual percentage rates (APRs) can stretch from 7% to 50% or higher, depending on the loan amount, term and other criteria.

However, these tend to be available only to firms with a minimum credit score of 600.

Business lines of credit

Operating like a credit card, a business line of credit allows a company to draw down partially or fully from a pre-approved limit on a revolving basis.

Interest is only charged on the funds withdrawn, and the credit limit resets once repayment is made.

This type of financing blends flexibility with attractive interest rates as low as 4%.

What’s more, some lenders are open to using your personal credit score of at least 500 in lieu of the business score.

Prepare documentation and apply

Finally, each lender is going to have their own application process and materials.

Besides business licenses and registrations, most are going to want to get a sense of your firm’s financial health.

This could mean financial statements or projections, tax returns and bank records. In certain cases, you may even need your personal documents.

A well-crafted business plan can also make your loan pitch more convincing.

As mentioned above, make sure to demonstrate a carefully thought-out strategy for your business, including debt repayment.

What Are Some Alternative Borrowing Options?

If you prefer not to borrow from financial institutions, family and friends, as well as crowdfunding are two of the most accessible alternatives for funding startup cash.

Screening criteria are far less stringent and very much rely on goodwill in the case of the former, and public generosity for the latter.

Kickstarter and GoFundMe are two popular crowdfunding platforms. 

Do you need help with your startup business loan?

At Basta & Company, we excel in supporting new businesses with their financing needs.

Helping startups is what we do!

We’ll guide you step by step in not only picking the right loan at the right time, but how to work towards financial sustainability and profitability long-term.

Feel free to book a complimentary 15-minute chat with us using our online calendar.

We’d love to see how we can help.

Until next time!