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Small Business Loans For Startups with Good and Bad Credit

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Small Business Loans For Startups with Good and Bad Credit

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What is a startup business loan?

Anyone starting a new business will likely need financial capital to launch their new endeavor. Startup business loans may be harder to qualify for, or require business owners to flee to alternative sources, but they are possible to obtain. Startup business loans can be secured or unsecured or they can even be in the form of a line of credit. There are other types of startup business loans such as inventory financing, crowdfunding, and so forth. Unsecured business loans are an ideal option for startups as they don’t require a down payment or collateral. Startups often struggle qualifying for loans because they may lack time in business, established revenues, or assets. Some lenders may specialize in lending to startups, although rates may be high. Startups should view their SMBscore to determine if they’re eligible for a business loan, find lenders willing to help, and learn what steps to take to put them in a better position to get approved for a loan. 

How do startup business loans work?

Startup business loans come in various forms, including loans, equity lines of credit, equipment loans and more. Banks can sometimes be hesitant to loan to startups since businesses have often been operating for a shorter period of time and have less collateral to offer. While they can be difficult to qualify for, there are several alternative methods like grants, crowdfunding and business credit cards for those who can’t get a traditional startup business loan. The specifics on how they work will depend on the type of loan. Below we will review various types of loans and a brief overview of how they work. 

Lenders That Offer Startup Business Loans

  • Business Loans For Startups with Bad Credit - If you're a startup with bad credit, OnDeck can help. Loan approval can be as fast as a few days, even for business owners with poor credit — however, higher rates are often a trade-off for speed and accessibility.
  • Startup Loans - Fora Financial only requires 6 months in business in order to qualify with funding up to $1.4 Million.

What are the types of startup business loans?

There are several kinds of business loans entrepreneurs can obtain when starting their businesses. As you consider which type of loan is right for you, the following funding options might be available to you: 

  • Term loansTerms loans are a popular and easy to manage funding option. Plus, with many online lenders offering them, requirements can be less strict. In most cases, they come with a fixed interest rate and term and are repaid over a predetermined period of time. While the length can vary, short-term loans are generally considered those repaid in under two years. Most lenders will fund them as a lump sum, minus any fees. For example if the loan has an origination fee, this will typically be deducted from the approved loan amount before funding. 
  • SBA loans: A government-backed option is an SBA loan. The United States Small Business Administration has a variety of programs that require little to no collateral to qualify, making them an appealing option for startup business owners. These SBA loans are popular due to their low-interest rates and longer repayment terms. To get an SBA loan you’ll need to locate an SBA approved lender and have plenty of patience to complete the process. 
  • Personal loans: Instead of a traditional business loan, personal loans are another option for startup business owners. These unsecured loans are based on the borrower’s personal finance history like, credit score, income, and current debt. There are some restrictions to these loans, though, as some lenders specify the funds are not for business purposes. Personal loans are based solely on personal creditworthiness, thus making them a viable option for entrepreneurs with a good personal credit history.
  • Unsecured line of credit: Similar to other forms of revolving credit, an unsecured line of credit is a renewable fund that allows borrowers to use up to a certain amount. This is beneficial for startups that don’t need funds in a lump sum and can be reusable in the future once the original amount is paid off. A line of credit can also be secured. 
  • Business credit cards: This option can give business owners quick access to a line of credit they can repay monthly. While interest rates are generally high on these credit cards, they can be a good option for more minor expenses or day-to-day operating costs. Plus, they’re easier to obtain than a loan from a lender.  

Which loan is best for a startup business?

Each business owner will have different needs for a business loan. But with so many options available, there are several things to consider before selecting the one that’s best for them. It’s recommended that startups should be in business for at least six months before trying to secure a loan. This will ensure you have access to the most options to choose from, and will more likely qualify. Those with less than six months of business can opt for a business credit card or personal loan. To determine which loan is best for you, visit mySMBscore to view credit data through the eyes of a lender. MySMBscore is a platform designed to empower small business owners to make educated financial decisions. If you need startup equipment financing with bad credit then consider VFI.

How much can you get for a startup business loan?

Most startup business loans are under $250,000, but can go as small as $1,000, depending on the type of loan you opt for. If you’ve only been in business for a few months, you’ll have difficulty securing a loan larger than $250,000, which is reserved for more established businesses. The best way to find out what you qualify for is to start checking offers with various lenders. Checking your SMBscore can also help you understand what you might qualify for. 

Is it hard to get a startup business loan?

While it is more difficult to get a loan if you’re just starting your business, it’s still very attainable. Since there is no established track record for your business, lenders can be hesitant to loan money. The key to getting a startup business loan will be demonstrating a solid business plan and likely a personal guarantee. 

Furthermore, to  improve your chances, you should review both your personal and business finances before applying. As you review the various quotes and shop around, you’ll better understand what you can afford and what type of loan will benefit you the most. 

What are the requirements for a startup business loan?

Each lender will have different requirements to obtain a startup business loan. However, most will set a minimum time in business and an annual revenue requirement to be considered. It’s generally recommended that you should be in business for at least six months before attempting to apply for a startup business loan. It’s also recommended you’ve already started earning revenue.

Which startup business loan is best for my business?

Finding the best loan for you and your business will depend on several factors. A few questions to ask yourself when narrowing down your options include: 

  • How long have you been in business? 
  • How much do you need to borrow? 
  • How quickly do you need the funds?

While it may simply come down to what you qualify for, you should do what you can to make the best possible arrangement to ensure the financial health of your venture. If you’ve only been in business for a few months, you might want to opt for a business credit card or personal loan that doesn’t depend on your business's success. Many startup business loans, like term loans and business lines of credit, will require a specific time the business has been operational and a specific revenue amount. There are also alternative financing options like merchant cash advances or invoice factoring that don’t require collateral to qualify.

What is the average startup business loan?

While amounts can vary greatly, the average startup business loan from private lenders is between $20,000 and $80,000. However, according to the Small Business Administration, the average microloan in 2021 was $16,557. The microloan program is popular for startups since they are easier to obtain and don’t require collateral to qualify.

How much money do I need for a startup business loan?

Some startup business loans require no down payment, like SBA microloans, a business line of credit, and some commercial equipment loans. However, most traditional bank loans will require a down payment ranging from 10% to 30%. Each lender will have different parameters though, so make sure to shop around and understand all your options.

The amount of down payment needed will depend on the type of loan, the amount of money requested and the borrower's financial history. You might have to put a higher down payment down if you have bad credit. 

Can I get a startup business loan with bad credit?

A bad credit score can make obtaining a startup loan difficult - but not impossible -. FICO defines any score under 630 as bad credit, with scores between 630 and 689 as fair credit.

If you have bad credit and are still trying to obtain a startup loan, some online lenders have tailored offerings to those with subprime credit. However, these loans will have a higher interest rate as there’s more risk for banks. Additionally, some local community financial institutions have developed offerings for those with poor credit.

How do I qualify for a business startup loan?

While qualifications will vary by lender and loan type, make sure you do your due diligence before applying. You should have access to:

  • Your credit score
  • Banking information
  • Financial documents for your business
  • Tax returns - both personal and business

If you don’t qualify for a traditional term loan, there are other options to obtain funding, like a business credit card or some personal finance loans, which have less strict qualification requirements. To better understand what lenders look at to qualify businesses for a loan, check your SMBscore. 

How do you apply for a startup business loan?

To prepare to apply for a startup business loan, you should understand first what it takes to qualify and what the lender might request. As you prepare to apply for a startup business loan, there are a few essential things to consider to qualify:

  • Learn more about the loan types available. Depending on your financial circumstances, different types of loans might make more sense for you. As you shop around, consider how quickly you need the funds, how long you’ve been in business and your credit score. These will all factor into which loan you can apply for.
  • Check-in on your credit score. Since your credit score is a major determining factor in terms of your loan, you should check it yourself before applying. This knowledge will arm you with the knowledge you need to understand if you qualify. Since you’re a startup it’s likely that the lender will rely on your personal credit score heavily. 
  • Gather documents. If you’re applying for a business line of credit or a grant, you will likely have to submit documents outlining your revenue and other finances. This will confirm your qualifications with the lender you’re applying with.
  • Shop around. Once you’re ready to start applying, make sure you shop for the best available rates. Several tools, like mySMBscore, can help you find qualified lenders prepared to work with you.

At mySMBscore startup business owners can check their SMBscore and unlock key financial drivers used by lenders, all with no credit impact. Our user-friendly platform allows business owners to identify ways to improve the likelihood of qualifying for a line of credit. Through the mySMBscore platform you can unlock offers for a business line of credit, business term loan, and more. The SMBscore was developed to create an industry specific, tailor-made risk assessment that can be used to determine the financial stability of small and medium-sized businesses (SMBs). Our score represents the risk of a company having financial difficulties in the next three years, thus empowering lenders and business owners. With access to key lending metrics, you can use the knowledge to unlock the best loan offers for your business. 

Take your startup to the next level with an affordable business loan. . . check your SMBscore now!

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