As the saying goes, you need money in order to make money. Startup business loans give businesses the financing they need in order to establish themselves in the first few years. 

Startup loans tend to small – according to the Federal Reserve Banks’ 2025 Main Street Metrics report, 46 percent of firms with two years or less in business sought loans under $50,000. 

Given the risks of financing new companies, lenders tend to be more cautious about extending these types of loans. While the best startup business loans will fund projects for companies with little time in business and limited credit histories, you can expect additional requirements like signing on collateral or a higher interest rate.

Here’s what you need to know about getting a startup loan.

How a startup business loan works

Startup loans ultimately work like any other business loan: You apply for funding, a lender assesses your creditworthiness, and if your loan is approved, you repay the funds with interest. The key difference is in the application process and requirements, as startup loans tend to be riskier for lenders to take on. Consider the pros and cons of a startup loan before applying in order to make sure you’re getting the best deal possible. 

Here is a more in-depth look at how a startup business loan works:

Requirements

Startup business loans may offer more lenient requirements in some respects, such as accepting borrowers with low revenue streams. You’ll want to review the requirements for revenue, credit score and other requirements before applying. That way, you ensure you’re applying with a lender that will approve financing for a startup. Different types of loans will often have different requirements. 

In general, lenders will look at:

• Your credit score. Startup loans can have higher personal credit requirements in order to make up for the risk in lending to a new business.
• Your time in business. You’ll often need to have at least six months to a year in business before a lender will approve your application.
• Your business plan. Lenders will want to see that you have a solid business plan and have done the right research to ensure your business is viable and that you are serious about making it work.
• Your projected revenue. If your business is already making sales, you can use your current revenue to create a revenue projection.
• Your collateral. Lenders may have you put collateral on the line, such as personal property or business assets, or sign a personal guarantee before approving you for a loan.
• Your current income. If you’re employed, or have a different business, some lenders will want to know how much you’re currently making so that you have a way to pay off the loan if your start up is generating revenue. 

Getting a startup business loan is often easier if you launch your business before you apply for funding. Showing lenders your business has an operating history is a big help when seeking financing, which is why operating your business as a side hustle can help you grow your business before you get a loan. 

Applying

Once you know the requirements, you’ll need to gather the correct documents and apply for the startup loan. These documents include:

• Personal and financial statements
• Business plan and loan proposal
• Employer Identification Number (EIN)
• Business license and operating agreement
• Recent bank statements
• Proof of business insurance
• List of accounts payable and accounts receivable
• Business financial statements (i.e., balance sheet, profit and loss statement)

Writing a business plan

Putting together a business plan shows how you’ll use the funds and how you can repay the loan. Lenders may use the business plan to gauge the strength of your business operations and ability to repay the loan, important for getting approved as a startup.

In general, a business plan should include:

• A brief description of your business
• Your businesses’ value proposition
• Products and services
• Business goals
• Market research and strategy
• Logistics and operations plan
• Financial plan and revenue projections

If you’re stumped about how to write a business plan, you can ask your lender if they have outlines for you to follow, or use non-profit resources such as the Small Business Administration, which offers business plan templates and tips.

Application review

Once you’ve turned in the application, lenders can take anywhere from a few days to several weeks to review the application. The lender will assess your creditworthiness and ability to repay the startup business loan, approving you only if it deems your business a credible risk.

The lender may not approve your loan if you don’t have the finances to support repayment or if you work in an industry with a high risk of failure. In some cases, the lender may partially approve the funding you requested.

Repayment

Once you’re approved for the startup loan, review your business budget to see if you can manage the repayments before signing the loan agreement. You can estimate the loan repayments ahead of time by using a business loan calculator.

After finalizing paperwork, you receive the funding and repayments begin at the agreed-upon date and repayment schedule. If you apply for a term loan, you’ll receive the funding as a lump sum given by the lender. If you apply for a business line of credit, you’ll get approved for a specific amount that you can draw from as needed.

Depending on the loan terms, you may be making monthly, weekly, or even daily repayments.

During the course of the loan, be sure to make all payments on time. Communicate with your lender if your revenue drops, and you think you might miss a loan repayment. The lender may be willing to work with your business over time to ensure the business loan is repaid.

Startup loan vs. conventional loan

Startup loans are often offered by the same lenders as conventional loans. They may be marketed as startup loans or simply small business loans with relaxed minimum requirements for credit or time in business.

The bottom line

You’ll have the best chance of getting approved for a startup loan if you have at least six months in business and an established business credit score or strong personal credit score. You’ll want to apply with lenders that approve business loans for startups and apply with buttoned-up documentation, including your business financial statements and a business plan showing how you plan to repay the loan.

The lender will approve you based on your ability to repay the loan, and then you will start loan repayments. You can compare multiple lenders and loan offers to see which lender will approve your business with the best loan offer.

Frequently asked questions

• How much can a startup business get a loan for?
  

  The amount a startup can borrow depends on many factors, including its current debt, revenue and its owner’s credit. SBA Community Advantage loans have a limit of $350,000, but 7(a) loans have a limit of $5 million, so it’s possible to borrow a large amount.

• How hard is it to get a business loan to start a business?
  

  Getting a business loan to start a company can be tricky. Most lenders prefer to lend to companies with at least six months to two years of operating history. If you have strong personal credit and sign a personal guarantee, that could help you qualify.

• Is it smart to borrow money to start a business?
  

  If you have a good business plan and a path toward profitability, borrowing money is still a risk, but that doesn’t mean it’s a bad idea. The majority of startups borrow money to help cover operating expenses or buy equipment or other assets that help them grow. Just make sure you understand the risk, especially if you sign a personal guarantee, and don’t borrow more than you can afford to repay.