Startup Business Loans: Types of Loans & How to Get Them
startup business loans

Startup Business Loans: Types of Loans & How to Get Them

There are several bottlenecks that you may come across when trying to float your tech startup, but very few can be as pivotal as money. As a startup entrepreneur, you have options such as crowdfunding, angel financing, venture capital funding, and startup business loans for funding your startup. 

For a business, expenses come in all shape and form, and you need a lot of funds to cater to them. In the USA, 21.5% of businesses fail to survive the first year of starting a business while only 50% make it to the five-year mark. Only three out of ten businesses reach the 10-year milestone.

Most of these failed startups sink due to the lack of funds or mismanagement of funds. Some startups also fail to choose suitable financing options.

In this article, you will understand how to get a startup business loan and what it takes to secure small business loans.

Basics of startup business loans 

With the help of loans, entrepreneurs can infuse life in their business idea and turn it into a business venture.

Important points to note about startup business loans:

  • Depending on your previous track record and other factors, the loan amount that you secure can vary from $500 to $750,000.
  • If you are looking for funding above $100,000, you will have to present a sound business plan to the bank. You also need to explain your business idea and how you want to turn it into a viable business.
  • If you are not into traditional loans, there are several startup funding options such as startup consultants, business credit cards, personal loans, equipment financing, SBA microloans, etc. These range between one to five years and charge a specific periodical interest rate.
  • It is important that you plan the repayment of the loan to best suit your business trajectory.

3 tips to successfully acquire startup business loans

While banks may only offer small business loans to you, there are several tricks that you can employ to secure sizable funding.

Tip 1: Build a strong case

If you are planning to fund your tech startup through a small business loan, you will need the expected financial figures that your startup can generate. 

These financial figures need to be segregated period-wise, and you will also need a projected score for expected expenses.

Tip 2: Have a strong backing

If you have decent savings, backing the business loan with a self-guarantee can help you secure a higher amount. 

However, you need to remember that this puts your personal resources at risk.

Tip 3: Maintain a good credit score

Always try and improve your personal credit score by ensuring timely and complete bill payments. 

If you are liable to pay taxes, follow the same routine. It works the same way for businesses.

Types of startup business loans

When you are starting your new business, your sources of generating loans will differ from those of established enterprises. 

This is because your business lacks a transaction trail and lenders have to then rely on your expertise and business model. 

It is therefore imperative that you stack your personal credit to give them a reason to approve your requests.

Here are the 6 types of startup business loans available to you:  

Type 1: Personal loans

A personal loan is more of a gamble. It puts much more at stake than merely the success or failure of your startup. 

As you begin, you will need a solid plan and impeccable execution. Other than that, you will have to set up your business credit ASAP.

These loans can be generated using your 401K/IRA savings, real estate mortgage, or credit cards.

Type 2: Business credit cards

For those looking for business credit cards, they are a viable option to fund small businesses but come with some underlying caveats. 

Lenders offering such funding will look at your personal credit score and your total income. Even if they do not ask for a mortgage, they may seek a personal guarantee for their convenience.

59% of small businesses prefer business credit cards for fuelling operations. 

You should also check if you are eligible for a 0% introductory financing offer. This will offer you a higher credit period and will allow you to run the business smoothly.

Type 3: SBA microloans

SBA or Small Business Administration offers microloans to small businesses to a maximum of $50,000. 

You get them through NPOs (Non-profit Organizations) and CDFIs (Community Development Financial Institutions). 

The funding caters to the working capital part of the business and aids in the purchase of raw material and other ancillaries.

Type 4: SBA loans

These work the same way as SBA microloans, but offer funds up to $99,999. 

They seek higher security and follow more stringent norms before approving a loan for your startup.

Type 5: Invoice financing

Invoice financing is another viable but costly way of ensuring a consistent flow of funds for your business. 

It is applicable if your customers seek a generous credit period for clearing their dues. 

To avoid the long payment cycle, you need a lending partner who grabs those invoices and approves the entire sum after deducting his interest and commission within 24 hours in most cases.

Type 6: Equipment financing

If you are into manufacturing or need equipment that costs a bomb, you can consider equipment financing. These are applicable in cases where a traditional loan is not the most viable option. 

Equipment financing ensures that you get an extended period to repay the loan amount. The only condition is that you can use the approved funds only for buying equipment and machinery.

In case you falter successive repayments, the lender has the right to seize the collateral or recover the loss from you.

In Conclusion

Thousands of ideas die untimely due to the lack of financial backing. Most governments today support startups and run campaigns to ensure that they get the desired funds in the best manner.

If you have faith in your idea, you should not shy away from acquiring a loan for your tech startup. Even if the conventional routes falter, you can seek the help of alternate means to fuel your dreams.


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