Securing funding can be a challenge for startup businesses. According to the 2024 Small Business Credit Survey, only 48 percent of new companies under five years old received the full loan amount they applied for, meaning 52 percent only received partial or no funding.

Many lenders may want to avoid the risk of default by not offering startup business loans, but some consider new businesses worth the risk. For example, the Small Business Administration has approved over $28 billion in (7a) loans for startups to open their business so far in fiscal year 2025.

Understanding how to get a business loan to start a business, such as the types of loans available, how to check for eligibility and what documents you need, can increase your chances of approval. When applying for a startup loan, follow these steps.

1. Determine how much funding you need

Some business owners make the critical mistake of requesting far more funding than they need to get operations up and running. They might get approved for a hefty sum, struggle to manage the loan payments and end up paying a fortune in interest or defaulting on the loan. A too-large request can also result in rejection by a lender.

You can avoid both unfortunate circumstances by creating a financial forecast with line items for projected income and expenses. By running the numbers, you’ll know exactly how much you need to borrow to keep operations afloat until the revenue starts coming in and your business can sustain itself.

These financial projections form an important part of your business plan. These projections help you estimate how much revenue you may bring in and when you’ll be net-positive in your business growth.

2. Decide what kind of loan you need

Different types of business loans suit different business needs. For example, lines of credit are a flexible funding source that works similar to a business credit card. Meanwhile, equipment financing is a lump-sum loan where the machinery or other equipment you purchase acts as collateral to secure the loan.

Here’s a rundown of the different types of startup business loans you can apply for. Each type of funding comes with its own pros and cons, so you’ll want to decide which one suits your funding needs best.

In some cases, startups may use alternative sources like crowdfunding to avoid the risks of debt financing. According to the 2024 Small Business Credit Survey, 35 percent of startups under five years old used personal funds from the owner or got a loan from friends or family to fund their businesses. The survey also found that startups are more likely to use loans from family or friends to get started than older businesses.

Despite startup business owners often using alternative funding, it’s still possible to find multiple business loans that would serve your needs without having to dip into other sources like personal funds.

3. Check your eligibility

The next step is to check your eligibility for a startup business loan.

Qualification criteria vary by lender and the type of funding you’re applying for. The most common criteria you’ll find on a lender’s website are its requirements for your time in business, personal credit score and annual revenue.

But lenders look at a range of factors to determine whether you’re eligible and can manage the loan repayments. The areas that the lender may evaluate include:

• Annual revenue. Many lenders want to see that your business has $100,000 to $250,000 in annual revenue, with online lenders requiring the most lenient amounts of revenue.
• Business credit score. The lender may peek at your credit rating if you’ve already begun building business credit. Still, your personal credit history is usually more important to small business lenders, especially when you’re just starting your business.
• Debt obligations: Lenders will analyze your debt load to determine if you can afford more debt. They may also assess your business’s debt service coverage ratio, which takes into account your net profit divided by your annual debt.
• Personal credit score. Most lenders require a credit score of 600 to 670 or higher to be eligible. Some lenders offer funding solutions to credit-challenged business owners with scores in the 500s, but the loans come with higher interest rates to offset the risk. Lenders with relaxed credit requirements this low tend to be online lenders.
• Personal guarantee. With business loans, you often have to provide a personal guarantee. This guarantee states that you’ll repay the loan from your personal assets if the business defaults and can’t repay the loan. This puts you legally on the hook for your business loan.
• Time in business. It’s not uncommon for bank lenders to require two or more years of business experience to qualify for a loan. This is problematic if you haven’t yet launched, so you’ll likely be better off with an online lender that extends financing to startups. Many online lenders may require a minimum of six months in operation, while only a few offer loans to startups with three months or less in business.

4. Compare startup business loan lenders

When looking for where to get a startup business loan, online lenders usually offer the highest odds of approval. However, you should compare loans from all types of lenders, including traditional ones.

Start by comparing the lender’s interest rates, terms and loan amounts on the lender’s website. If these features seem agreeable to you, see if you can prequalify with the lender. Prequalification allows you to see the loan offer you might qualify for without a hard check on your credit.

As you evaluate the loan offer, read the fine print and pay attention to the fees and the total cost of the loan. For instance, the loan may include application, origination or guarantee fees. The SBA charges a 0.25 percent guarantee fee for (7a) loans of $1 million or more, which adds to the total loan cost. If you think you can pay the loan back early, check to see if there is a prepayment penalty.

You should also consider how fast you can get the funding, especially if you need funds within a day or two as opposed to a week or longer.

5. Gather documents and apply

When you’re ready to apply, you will need to gather loan documentation for a startup business loan, including these documents:

• Balance sheet
• Business loan proposal, outlining how much you need and plan for repayment
• Business plan that includes financial projections and a breakdown of how you’ll use the loan funds
• Cash flow statements
• Copy of your company’s business license and formation documents from your state
• Outstanding invoices if applying for invoice factoring
• Personal and business tax returns from the past three years
• Personal guarantee
• Personal information, such as your name, address and Social Security number
• Profit and loss statements
• Receipts from quarterly tax payments
• Recent personal and business bank statements
• Schedule of business debts
• Your company’s employer identification number (EIN)

This list isn’t all-inclusive. If possible, contact the lender beforehand and inquire about documentation requirements to avoid hiccups in the application process.

6. Take steps if you’re rejected for a startup business loan

Before giving up or pumping the brakes on your new venture, reach out to the lender and inquire about the reason that your business loan was denied. It could be a result of conflicting information in the application or a credit-related issue. Either way, you’ll know what’s needed to improve your chances the next time you apply.

You can also apply with a lender that has more lenient requirements or wait it out and apply again once you’ve improved. Some of the alternatives include:

• Business grants. You can apply for free funding through federal, state or local business grants, allowing you to get funding that you don’t have to repay. However, grants tend to be competitive and are not guaranteed funding.
• Use a crowdfunding platform. Create a campaign using a crowdfunding platform, like Kickstarter or Indiegogo, to raise money. Depending on your campaign type, donors may receive equity in your business, a reward or a repayment with interest over time. You’ll typically pay a fee to use crowdfunding services.
• Borrow from friends and relatives. Raise funds from your personal network. It may be possible to secure interest-free or no-interest loans without jumping through hoops. However, you could damage your relationships if you delay or fail at repaying.
• Use a business credit card. If you have good or excellent credit, you could get a business credit card, which often comes with rewards or a low introductory interest rate.
• Tap into your personal savings. Using your own funds could also work. You won’t pay interest since you’re using your own money. That said, depleting your cash reserves can damage your finances if your startup fails.
• Use a personal loan for business purposes. If you don’t qualify for a business loan, you could get a personal loan to finance your business. This however, makes you personally responsible for repaying the loan. You will also need to verify that funds can be used for business, as some personal loans restrict how the money can be used.

Bottom line

Getting a startup business loan is similar to getting a standard business loan, except that you’re looking for a lender that’s friendly to businesses with little time in the market. When deciding which lender and type of funding is best, you’ll need to assess how much funding you need and your eligibility.

If you don’t qualify for traditional debt financing, consider alternative funding sources such as a business grant, personal loan or crowdfunding. It’s common for startup businesses to use alternative funding sources, including their own personal finances.

Frequently asked questions

• How do I qualify for a startup business loan?
  

  The eligibility criteria vary by lender. Most require you to meet minimum credit score, annual revenue and time in business requirements. Inquire with the lenders you’re considering to learn more about their guidelines.

• Is it hard to take out a loan to start a business?
  

  Getting a startup business loan can be challenging if your company isn’t yet established. But that doesn’t mean it’s impossible, and you may find funding solutions with a bit of legwork.

• How much can I borrow with a startup business loan?
  

  Startup business loan amounts range from $1,000 to several million, depending on your type of loan. The amount you’re approved for is usually determined by your personal credit score, business credit score (if applicable), time in business, annual revenue and debt-to-asset ratio.

• What credit score is needed for a small business loan?
  

  A credit score in the mid-600s is usually enough to qualify for funding. Some lenders will approve you with a credit score in the high 500s but expect a higher interest rate.