Guide on How to Get a Loan to Start Your Business

Guide on How to Get a Loan to Start Your Business

January 9, 2023

How to Get a Loan for your Business? It is an exciting time to start a new venture, but it can be stressful to get the financing to get your start-up off the ground. You can understand what commercial lenders are looking for, what you can apply for, and some alternative methods you can take by researching how to get a loan to start a business.

How to Get A Loan to Start Your Business

1. Build Your Business Reputation

The overwhelming majority of companies in the United States are sole proprietorships, so it can be more difficult to get a business loan than if you were to establish a different corporation.

There are many options, the most popular of which include a partnership, limited liability partnership (LLP), limited liability company (LLC), S corporation, and C corporation when deciding how to structure your business.

When it comes to taxation, liabilities and other attributes, each of these bodies has advantages and disadvantages. But to make sure you choose the right one for you, it’s important to take your time to study and one. To receive some advice for your case, it may also be worth consulting with tax and legal professionals.

Business Identity

You’ll need to establish a separate identity from yourself in order to receive funding for your company. Many measures can be used in this process.

Employer Identification Number

An employer identification number (EIN) functions for business organizations as a Social Security number. Although it is not mandatory to have an EIN for every company, having one will help you differentiate your company and personal finances and give you a better chance of applying for a business loan and checking account.

By requesting one on the IRS website, you can get an EIN for free. The procedure is quick and painless.

Different Phone number and Address

It may also make sense to get a separate phone number and address, depending on the nature of your company. If your company is home-based, think about getting a P.O. Box or using the operation of mail forwarding.

These practices are not absolutely important, but they will prove to potential lenders that you are serious about keeping your company and personal life apart.

Also, Read: Business Loan Requirements, A Complete Checklist of Documents

2. Know how you are assessed by lenders

Commercial lenders are made up of banks, credit unions, online lenders, non-profit organizations, and other lending companies.

You can see various approval requirements, depending on the type of loan you’re applying for and the lender. In general, however, below are some of the variables that lenders consider when applying for a business loan.

Cash Flow

Lenders may also want to assess your financial capacity to pay back the loan you are applying for, in addition to reviewing your prior experience with paying off debt. This could include asking for a statement of profit and loss, a balance sheet, and a statement of cash flow.

And if your company is completely new and does not have any sales, your personal income and expenses will also be included.

Credit Score

A snapshot of your overall credit health is your credit score, but it doesn’t tell the whole story. To see if there is any information that might prove to be a red flag, lenders would also probably review one or more of your credit reports.

Negative credit report products, such as bankruptcy, foreclosure, collection accounts, and late payments, for example, may indicate reckless use of credit and make it hard to get authorized.

Personal Credit Score

Your personal credit score plays a significant role in your application as you are applying for a loan for your company and not to cover personal expenses. There are two explanations for this: your company probably doesn’t have a credit history of its own, and a personal guarantee will be needed for the loan.

Since a startup obviously didn’t have the ability to create business credit, lenders just have their personal credit background to see how risky you might be of a borrower. And many business loans require a personal guarantee, which ensures that if your company can’t, you’ll be directly on the hook to pay back the debt.

Business Age

Many company lenders expect you to be in business for at least a year or two before they even consider your start-up with extended credit. So if you’ve only been at it for a couple of months or even a couple of days, your choices will be minimal.

That being said, there are some business lenders that specialize in dealing with brand-new owners of companies and some alternatives that do not look at how long you have been in business whatsoever.

The Collateral

Not all company loans need collateral, but getting it will increase your chances of being accepted.

That’s because, in case your business fails, collateral, usually in the form of a tangible asset, car, or real estate, acts to protect the loan. The lender seizes the collateral and sells it to satisfy the loan, instead of going for the personal properties for repayment.

Collateral eliminates the amount of risk a lender takes on rather than a personal guarantee, so it is usually easier to get secured business loans than unsecured loans.


The lender’s main concern in any credit situation is to ensure that it gets repaid, and the market in which your company is maybe one predictor of how likely you are to succeed. What’s more, lenders may want to see if you already have experience in the same industry, or whether it’s all new to you.

In general, the chances of success with the new venture are better if you’ve been in the business for a long time than if it’s something you’ve never done before.

3. Vendor Credit

You might be able to set up a credit agreement with one of your suppliers instead of looking for a business loan directly from a lender.

Instead of demanding cash on delivery, vendor credit allows you a fixed time to pay what you owe. Popular terms include net-30, net-45, and net-60, giving you 30, 45, and 60 days to pay, respectively, from the invoice date. In certain situations, if you pay instantly, you can also qualify for a discount on the invoice.

Vendor credit doesn’t act as a loan, offering you an infusion of cash over time that you payback. But it can give you the flexibility you need to control your working capital and make it more effective for you to run your business.

4. Credit Card for Business

Business credit cards serve like a revolving credit line that you can use as financing for your company over and over again. They are also suitable for new companies because they don’t need much time in operation, a minimum annual income, or a history of business credit.

Instead, your personal credit score and reviews will be looked at by business credit card issuers, and will also require a personal guarantee.

Your statement on a business card will close each month, allowing you a grace period and a due date for payment, as with consumer credit cards. You can stop interest rates as long as you pay your monthly balance on time and in full, and can begin creating a business credit record.

Many business credit cards also offer other features, including sign-up incentives, rewards on regular spending, introductory 0 percent APR deals, and more, in addition to giving you access to credit. So if you’re thinking about going this road, take the time to compare options to make sure you find the best match for your company.

5. Using personal loans for business

A personal loan is not a credit that you are applying for on behalf of your company, as the name suggests. But it could be worth considering with so few options available for startups.

Many private lenders allow borrowers to use business expenses with loan funds. You may also expect relatively low-interest rates, maybe even in the single digits, if your credit is in good shape.

Usually, personal loans are unsecured, meaning you don’t have to put up collateral in order to get accepted. However, one major downside to using a personal loan is that it won’t help you develop a history of business credit.

6. Get a loan for equipment

You can be able to get equipment financing without much time in business if you need to buy equipment or a vehicle to operate your company. This is partly because equipment loans usually enable you to use the asset you are buying to guarantee its repayment with the loan funds.

Funding for equipment is not only worth considering because it is possible to apply as a start-up, but also because it usually has attractive conditions, including low-interest rates and flexible options for repayment.

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