Small Business Start-up Loans

If you’re like many individuals, you have thought about starting up your own business.  Granted, the dream of being your own boss, making a living doing something you enjoy, and setting your own schedule can be extremely tempting.  But there is a lot to consider and one of the most important aspects of new business start-ups is having the money to do it.  To start with, there are very few lenders, if any, that are going to loan you 100% of the total amount of funding that you need for your start-up loan.  More than likely, you are going to have to raise up to 25% of the funds yourself.

In order to better understand what is involved with applying for and getting small business start-up loans, you need to sit on the lender’s side of the table and take their position into consideration before you start applying:

  • Lenders are businesses that, at one point in time, went through exactly what you are about to experience.  So you are going to have to provide a certain level of certainty to the lender that you will repay them if they loan you money.
  • Lenders determine the amount of interest they have to charge based on the amount of risk that they are incurring.  This is why having a good credit score is so important.  The lender uses your credit history to determine your ability for paying back the loan.
  • Lenders make their money by loaning you money.  So it is essential that you develop a relationship with your banker or lender.  Remember, when it comes to that loan, you and the lender are on common ground and it is going to take a lot of cooperation to get through the process.

As a result, the different financing options available to start-up business entrepreneurs and owners include franchise loans, microloans, and unsecured loans.  Fortunately, all three types of loans can be guaranteed by the Small Business Administration (SBA).  They will guarantee a borrower to a lender for up to $1 million despite the fact that they do not actually loan money.

Alternative Financing Options


Entrepreneurs will frequently finance their business start-up by borrowing money from family members and friends or by using their own savings.  But sometimes, equipment and inventory costs more than what they can cover.  In this case, a microloan might be your best financing option.  Microloans range between $13,000 and $50,000 according to the SBA.  You can use the funds for inventory, working capital, and other needs.  However, they cannot be used to pay off debts or purchase real estate.  But depending on the lender, the interest rates will vary and at times, can be very high.

Unsecured Business Loans

Let’s assume that the capital needed for your business start-up is more than $50,000.  Let’s also assume that you cannot raise enough of this capital by borrowing the money from family members and friends or that you don’t have enough in your personal savings.  You may want to consider applying for a larger secured loan or an unsecured one.  The primary difference between the two is that collateral is required for the secured loan and the lender can liquidate it to pay off the debt should you default on the loan.  So if you do not have the means to secure a loan, your best option is an unsecured loan.

Franchise Financing

According to the International Franchise Association, there were roughly 11,000 franchises that opened their doors in the US in 2013.  If you are considering starting up a franchise business, the SBA can make things easier for you by streamlining the loan process.  Also, the IFA estimated that banks had nearly $24 billion in funds available for franchise loans.  When you combine that with a franchise’s turn-key benefits of starting up that type of business and operating it, you have an alternative opportunity to the more traditional small business concerns.

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