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Getting Started with Business Loans for Startups

12 min read

Most startups need business loans to kick off their business plan. Other existing ones need business loans to expand their existing operations. But one striking thing, no matter what your business needs a loan for, is how confused people tend to be in their search for business loans. Some incredibly successful entrepreneurs don’t have a clue as to how and where to begin. But don’t worry! We’re here to help.

If you have a startup, you should know what available options are available to explore for your company. That way you stand a better chance of taking your business to the next level, regardless of the quality of your credit history.

In this article, we will dig into the details of how to get started with business loans. We’ll help you learn about all the business loan options out there and what you need to do to get the loan that’s right for you, among other details.

Take advantage of the lowered barrier to entry into ecommerce for your retail business with the loans for startups that apply to your business. Businesses choose Ecwid because of our promise of delivering top-quality and appropriate ecommerce features for any business needs.

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What is a Business Loan?

A business loan is a type of debt financing which involves collateralization of the loan with a business or owner’s assets or is financed and backed by the entire assets of the business and/or the owner’s assets. Thus, collateralized loans and small business loans overlap. But the difference is that you can use certain assets to secure the loan for collateralized loans. On the other hand, a business loan may include these assets, as well as collateralization of the business or personal owner’s assets. Some benefits of securing business loans for startups include: better rates and terms, higher rates of approval, and allowing for the leveraging of assets.

Where To Get Startup Loans

There are 29.6 million small businesses within the United States. The Small Business Administration (SBA) said small businesses account for up to 99.9% of the businesses in the U.S. You will be contributing to the country’s economy positively by starting a small business. Therefore, getting loans to fund your startups can be pretty easy, provided you know where to look.

Types of Business Loans for Startups

Medium-term loan

medium-term loan, otherwise called a “traditional term loan”, is the most common form of business loan you can secure for your startup or other small business. You get a lump sum of cash which you can repay with interest spread over a time frame.

With traditional or medium-term loans, banks will request that you put up some collateral for the loan: this could be real estate property or other assets. The collateral will be dependent on the bank and the sum of money you want as a loan, including your credit history.

It is advisable to put up your property as collateral, and if you are confident that you can meet the deadlines for payment, this type of business loan is a good fit for your startup.

Equipment loans

With an equipment loan, you can secure a business loan which will help you get the tools you need for your company without spending from your business’s revenue. This type of loan offers you a credit line through a lender or banker and allows you to repair damaged equipment, replace outdated ones, or buy new ones that suit your business needs. The lender will thoroughly examine your up-to-date business data before you can secure this loan. That way, they can determine if you meet the requirements and ascertain your reliability. This type of loan is suitable for startups who do not want to use all the business’s free cash to procure new equipment.

SBA loans

These are loans granted by the Small Business Administration (SBA). They are ideal for startups who fail to qualify for conventional business loans. That is, through other lenders or a bank. Many business owners in different industries secure SBA loans to fund their growth. They will match you with many lenders within the space of two business days. Then, you can decide to choose the one with the interest rate that suits you. Upon selecting the lender to take a loan from, you can complete the requirements and other documents without involving SBA. This type of loan is perfect for your startup, especially if you cannot get the support or assistance of a bank.

Invoice factoring

If you’re looking for short-term working capital and you want to avoid taking out a business loan to get help for your financial needs, make use of unpaid invoices. Specifically, factoring requires selling your unpaid 30-90 invoices to a factoring company so that they can tap into funding right away.

Nonprofit microloans

Nonprofit microloans are an excellent option for financing a startup. According to Fundera- a small business lending marketplace- microloans fall within the range of $500  $50,000 and are available for business owners with affordable and flexible interest rates. Moreover, depending on your choice of company, with a micro-loan, you can also get additional support that goes beyond just funding. This could be based on financial literacy schemes, training, marketing support, assistance with building business credit, or zero interest (in some cases).

Equity crowdfunding

The purpose of equity crowdfunding is to aid businesses or startups in the early phases of development. You will agree to exchange your business shares for funds. All you need to do is- set the terms, and once investors can see through and are convinced, you two can reach an agreement. In this method of securing a business loan, the investor bears more risk since they are less likely to recoup their money if the business goes south.

Getting Started with Business Loans

It’s very likely that you’ll need to secure a loan to convert an idea into a business. One of the best ways to obtain the required funds is to combine an alternative lending strategy with more traditional loans. Many people believe that there must be some collateral involved before a business can get a loan, and before the lender can approve the fund. And that may be true! But it’s important to look into all your possible options before jumping into one strategy over another.

There are quite a few small business lenders that do not require collateral. Many of these lenders give out business loans to businesses in the early stages of their journey without requesting or demanding collateral. These lenders offer loans and secure financing by making use of your assets or the business’s assets.

You will need to have an edge to be able to secure a business loan as a startup. This owes to the competitive nature of startup loans. Meanwhile, you can increase your chances of securing a loan amid the intense competition by following these steps.

Develop a very good business plan

In your application for a loan, a detailed business plan is usually required. This will highlight a detailed consideration of the startup expenses attributed to your business, and convince the lender that you have done your due diligence on the product or service you are delving into to ensure a business model that is profitable.

It’s important to be thorough and careful in your business plan. That way, you can pitch the business to the lending organization even when you have yet to launch. You could also include a projected (tentative) repayment plan in addition to the expected income and expenses. It should be per the expected growth.

Keep your credit score up

You are more likely to secure a business loan when you have a good credit score. This will also qualify you for a lower interest rate, and ultimately, allow you to borrow more money. Thus, it’s important to be confident in your credit score before you apply for a business loan. You can raise your credit score significantly by checking your report to identify and correct any inaccuracies as well as track and limit your outstanding debt.

Get some money all by yourself

You will also need to have some funds ready on your own because banks, financial institutions, and other lending organizations will check your assets to decide whether or not to approve your loan. Getting some funds ready to pay a part of the startup costs to kickstart your company often appeals to lenders and in the long run, it can save you money on interest, as you can take out a smaller loan amount.

Business Loans for Startups with Ecwid

Securing a business loan for your startup is an important part of starting certain ecommerce businesses. In other words, you might want to use a business loan to finance a small online retail business. This is where Ecwid’s ecommerce solutions work well. Tap into our wealth of applicable ecommerce features from social media selling to set up an instant sales portal as you borrow and repay your business loans. At the same time, it’s important to note that the idea of funds or loans for startups is not only limited to selling goods online.

Different financing options might work regardless of the kind of startup you have. The bottom line is that your qualification for the loan depends on the type of financing you seek. In addition, the favorable terms and low costs attributed to these loans work better when you have a reliable, solid ecommerce platform like Ecwid.

Our Verdict

Business loans exist to help your company grow. But you must be aware of the available options out there to help you decide which one is best for your business, and which one matches your specific business needs as you grow and evolve.

Hundreds of billions of dollars are lent by business lenders as capital each year. Many also have numerous funding options. So, be sure to seek out the most favorable option in terms of the low cost of capital and smooth serviceability, in order to maximize your potential growth and success.

Do you want to learn more about startups?

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About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.

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