Among many things you need to expand your startup business, sufficient capital is essential to get your business to the next step. In order to get capital growth, most businesses get a loan from financial institutions. However, the process of securing a loan for startups is not as easy as compared to an established business. We will explore the details of obtaining a startup business loan.
Things to be Aware of Before Taking Out a Loan
There are various loan financing options for startups, and both have specific requirements to be met and different loan options to choose. As you are figuring out what is the right business loan to apply for, here are a few factors to look out for:
- Loan repayment period varies depending on the type of loan. For short-term loans, it can range from three to eighteen months and up to 25 years for long-term loans.
- The interest rate you receive will vary by lender and loan type. Therefore, it is always a good idea to shop around for the lowest rates from different financial institutions.
- Some lenders will require you to put up collateral in certain cases. If you have to put collateral, find out what is required, or else try to get the criteria for qualifying for a startup loan without collateral.
- Startups can be desperate for financial support, and accepting offers from any lender who steps up can be tempting. In your quest to compare lenders, it is important to check their legitimacy through other clients and reviews from existing customers.
Steps to Obtaining a Startup Business Loan
1. Write a Business Plan
A business plan will help show the lenders how you are prepared to achieve your business goals and reassure them you are eligible for the loan requested. This is an essential step of the approval process.
2. Choose the Type of Financing
The most popular lenders for businesses include banks and credit unions, and many startups would want to go with these two options. However, it is good to know that there are many other options for startups out there when it comes to financing. Along with the financing options, different types of loans are available for your startup business. Deciding what is right for you will depend on your needs and who can meet those needs more effectively.
Some of the different types of loans include:
- Online business loans
- Short-term loans
- SBA loans
3. Check Your Personal and Business Credit Scores
A business credit score is mainly available after six months or more of operation, which will be used to gauge the risk of lending money to your business. However, many startups don’t have enough time to build up a good business credit score. In this case, your personal credit score will be used to determine if you are eligible for a startup business loan. Therefore, before applying for a loan get a copy of your credit history and make some necessary improvements if needed.
4. Compare Lenders
Now that you have your credit score in check, it is time to shop around to get an idea of what it will cost you. Different lenders can have different interest rates and fees for the same loan product. Even though it can be tempting to accept the first offer that you get, it is important to compare multiple lenders before settling for one. Additionally, check for the annual percentage rates and fees, as well as other costs compared to other options available.
5. Gather Required Documents
As you shop around across different lenders, you will find that the required documents vary by the lenders. However, there are common documents that all lenders require. Most of them will want to see three years of business or personal tax returns, copies of business licenses and registrations, outstanding invoices, financial statements, business and personal bank statements to verify their request validity and business existence.
6. Submit Your Loan Application
Once you have all the required documents and have chosen a lender(s), it is time to prepare for your application submission. Figure out the application process, as with some lenders it can be completed via email, online or in person with a loan officer. Applying is the easy part, getting approved can be challenging.
Saddock Advisory Can Help You Obtain a Business Startup Loan
Getting a loan as a small business owner can be challenging and confusing. Even though the process and steps are open to all, some lenders have more requirements than others. Here at Saddock Advisory, we have financial experts who are here to help you secure a startup loan. Contact us today!