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Have you finally decided to turn your passion or expertise into a viable business? Great! But starting a business takes a certain amount of capital.

From the physical establishment to the equipment, to employers, to marketing and beyond, starting a business can be expensive when you’re trying to get it off the ground and running.

Luckily, there are startup business loans available to help you start your business from the ground up. Read on to find out more about these specialized loan products and how they can help you realize your dreams of starting and operating your very own business.

Avoid these common business loan application mistakes.

Startup Business Loan Options

Not every business is the same, and as such, there are different startup business loan products available. Here are a few of the options you may want to consider based on your specific type of business.

Unsecured Loans

A business loan that does not require collateral is a form of an unsecured loan. These loans are riskier to lenders, and they tend to come with a higher interest rate to offset this risk. 

Secured Loans

Business loans that require collateral to back up the loan are secured loans. You can put up a valuable asset to collateralize the loan. This includes your accounts receivables, machinery, or any other tangible business asset. Just keep in mind that you could lose that asset if you default on the loan. While secured loans are a risker option, they are easier to qualify for and can land you a lower interest rate. 

Merchant Cash Advance

If your company accepts credit card payments from customers, a merchant cash advance can be helpful. With this product, you would be granted a lump sum amount from your lender in exchange for a percentage of future credit card sales. This form of credit is extremely expensive but fast and easy to qualify for. Moreover, your payments will adjust according to your credit card sales, which makes it a good option for those who experience high and low seasons. 

Equipment Loans

An equipment loan is a form of a secured loan. An equipment loan actually uses the equipment you buy to run your business as collateral for the loan. This form of credit is easy to qualify for and typically has low rates.  However, it’s important to remember that lenders will usually finance up to 80% to 90% of the equipment. Meaning you’ll have to finance the other 10% – 20% or find another lender to lend you the rest. Like a regular business loan, you’ll make monthly payments for a period of time. Once the loan amount is paid in full, you will outright own the equipment.

Line Of Credit

Somewhat like a credit card, this type of revolving credit allows you to borrow any amount of money up to a certain limit whenever the need arises. Once you pay back the amount you borrowed, you can borrow against the credit line again and again, only paying interest on the amount withdrawn. This is a great option if you need to cover cash flow issues from time to time without having to constantly take out a new loan.

Factors To Consider When Applying For A Startup Business Loan

When you take out a startup business loan, you’ll be committed for a certain amount of time. And during that time, you’ll be required to make regular timely payments.

As such, you’ll want to make sure you take out the right loan. To do that, you may want to look at specific factors of business loans, including the following:

  • Interest rate – The rate that you are charged on your loan will determine exactly how much you owe in total. The lower the rate, the less you’ll have to pay. Even a fraction of a percent in interest can mean the difference of thousands of dollars overall. That’s why you should absolutely look at the APR, which includes the interest rate as well as any fees that the lender may charge.
  • Qualifying requirements – Every type of loan may have its own set of criteria that must be met in order for you to get approved. Make sure to find out what these requirements are before you apply.
  • Processing time – Startup business loans sometimes take longer to process compared to other types of loans. While some loans can be processed within a week, startup business loans can take up to a month or more, so you’ll need to be prepared for this.
  • Collateral – A secured startup business loan will require collateral to back up the loan. This can include your home equity, your vehicle title, or the equipment you use for your business.
  • Loan amount – Make sure you understand how much you need to start your business so you don’t get stuck owing more than you needed to borrow, or with a loan that’s not adequate enough.
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What Are The Startup Business Loan Eligibility Requirements?

Like any other type of loan, a startup business loan has certain requirements that you’ll need to meet in order to qualify. That said, the requirements may vary depending on your credit health and the lender:

  • Good credit score. Conventional lenders like to see borrowers with a credit score of at least 650 before considering granting a loan. Some lender may even check your business credit score.
  • A sound business plan. Your lender will want to see that you’ve put in some effort to come up with an in-depth business plan that outlines what your experience is in the industry, where you plan to take your business once you start it, and how much money you need to cover all relevant expenses.
  • No delinquencies or bankruptcies in the recent past. Your credit report will be pulled when you apply for a startup business loan. And in addition to your credit score, your lender will be able to see if you’ve had any recent delinquencies or bankruptcies. If so, this could hamper your ability to secure a loan.
Business Loan Check List
3 Step Process

How To Apply For A Startup Loan?

Review Your Finances And Gather Your Documents
Applying for a business loan is no easy feat, especially as a young business. Reviewing your finances ahead of time will help you in your search for lenders by choosing ones whose minimum requirements you meet. You can also gather all the necessary documents needed for a business loan to ensure you don’t forget to submit any when applying.
Compare Business Lenders
You can compare business lenders and their loan offers by using a loan comparison platform. These platforms allow you to compare multiple loan quotes from different lenders by submitting a single application. You can then review your offers and choose the lender you wish to work with.
Complete Application
Once you know who you want to work with, you may need to provide some additional information to complete the application. Once you’ve reviewed and signed the loan agreement, your lender will transfer you the funds.

Business Financing For Any Industry

Own a business in another industry? Click here

How Much Does It Cost To Start A Business?

The amount of money needed to start a new business can vary a great deal. To help you determine roughly how much you can expect to spend, here are some steps for calculation:

Consider your startup expenses – Here are some one-time costs you should factor in:

  • Leasing Costs. Will you be leasing an office, storefront, or factory? How much do you need to budget for this?
  • Marketing. How do you plan to market your new business? Will you need to hire a full-time or part-time employee for this job?
  • Business Registration. Don’t forget that you’ll need to register your business and choose a business.
  • Website Design. Do you plan to have a website? How much will it cost and who will manage it once it’s live?
  • Supplies And Equipment. Don’t forget common expenses live office supplies, laptops, telephones, and even specialized equipment.
  • Payroll Expenses. It costs money to pay your employees. Are you planning to handle payroll yourself? What program or service are you going to choose?
  • Insurance. Don’t forget employee insurance. The cost of this will depend on the type of business you’re running.
  • Lawyer Fees. Do you need to hire a lawyer to help with
  • Training. Will your new employees need specialized training? How much is this going to cost and will this be an ongoing expense?

Factor in the assets required – Certain assets will need to be purchased at the forefront, including the following:

  • Inventory
  • Furniture
  • Remodelling
  • Equipment

Estimate ongoing operational costs – To keep business running smoothly, you’ll need to dish out a certain amount of money per month to cover any one of the following:

  • Rent
  • Utilities
  • Payroll
  • Inventory
  • Advertising

Tally up all of these expenses to come with the amount you request from your lender in the form of a startup business loan.

Canadian Business Loans
Do you know what working capital is? Learn everything you need to know here.

Startup Business Loan FAQs

How much can I borrow through a startup business loan?

The answer to this question depends on a few things, including your lender, collateral, credit score, and business plan. Lenders will usually loan amounts from $5,000 to $500,000.

What is the loan term for startup business loans?

Loan terms usually vary from anywhere between two to seven years. Although again, this varies greatly depending on the amount you need and the lender you’re working with.

Can I get a startup business loan with no credit check?

Most lenders will do a credit check to verify your creditworthiness. If you have bad credit and don’t want to have your credit checked, you may want to look to an alternative private lender. Or else, crowdfunding or equity investments might be viable options.

Do lenders check your personal credit?

Yes, some lenders will check your personal credit when assessing you for a business loan. Your personal credit is a reflection of your likelihood to repay your debts. If you have multiple defaults and a poor credit score, your lender will see you as a high-risk borrower, which may result in higher interest rates or a rejection

How do I increase my chances of getting a business loan? 

There are a few things you can do to increase your chance of getting approved for a business loan. You can try improving your credit score by making timely payments and reducing your debt-to-income ratio. You can also try increasing your cash flow by reducing your expenses to show that you have enough positive cash flow to pay bills and debts. Lastly, you could secure the loan with an asset to provide the lender with added security.

Final Thoughts

Applying for a startup business loan is a great way to get the financing you need to get your business off the ground. In order to get approved for a loan that best suits your needs, it’s important to come up with a business plan and make sure your finances are in order.

If you’re ready to take out a startup business loan, call Loans Canada and we’ll put you in touch with the right lender. Get in touch with Loans Canada today!

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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