Startup business loan: How to fund your new business

Published Thursday 22 January 2026

Table of contents

• What is a startup business loan?
• How much do you need to start a business?
• Startup loan amounts and terms
• Types of bank loans for your business
• What are the qualifications for a startup business loan?
• How to get a startup business loan
• Alternative startup financing options
• Simplify your startup financing with organized records
• FAQs on startup business loans

Key takeaways

• Calculate your total funding needs by adding startup costs plus 6-12 months of operating expenses, including equipment, inventory, legal fees, and working capital to demonstrate thorough planning to lenders.
• Maintain a credit score of 650 or higher and prepare to invest 10-30% of the total loan amount from your own funds to significantly improve your approval odds with traditional lenders.
• Create detailed monthly cash flow projections showing when sales will start and grow, with monthly income exceeding loan payments by at least 1.25 times to prove repayment ability.
• Consider alternative financing options like SBA-backed loans, angel investors, or crowdfunding if traditional banks decline your application, as these often have more flexible qualification requirements.

What is a startup business loan?

A startup business loan helps you launch or expand a new business. These loans help cover initial costs like equipment, inventory, and operating expenses.

The helps startups access funding by backing loans through approved lenders. SBA-backed loans follow government guidelines, making qualification easier than traditional bank loans.

Startup loan or a loan to start up?

While banks don't offer specific 'startup loans,' you can use various types of business loans to fund your new venture. The term 'startup loan' is simply marketing language – what matters is finding the right financing option for your business needs. You can use any type of loan to start a business.

How much do you need to start a business?

Before you apply for a loan, you need to know how much money you need. Every business is different, but most startups face similar initial costs. Calculating these expenses helps you ask for the right amount and shows lenders you've done your homework.

Common startup costs often include:

• equipment and software
• inventory or raw materials
• rent or a down payment on property
• marketing and advertising expenses
• business licenses and legal fees
• initial payroll for your first employees

Startup loan amounts and terms

The amount you can borrow for a startup varies widely, from a few thousand dollars to several million. For example, SBA-backed loans can range from $500 to $5.5 million. The final amount depends on the lender, the type of loan, and the strength of your application.

Loan terms, which include the repayment period and interest rate, also differ. A strong business plan and good personal credit can help you secure more favorable terms. Lenders want to see a clear path to profitability, so your financial projections are key.

Types of bank loans for your business

Startup loans typically range from $10,000 to $500,000 and come in two main types:

Term loans: Receive a lump sum upfront and repay over 1-7 years with fixed monthly payments

Lines of credit: Access funds as needed up to your approved limit, paying interest only on what you use

What are the qualifications for a startup business loan?

Startup loan qualifications focus on your ability to repay, even without business revenue. Lenders typically require at least one of these factors:

• Credit score: 650+ for most traditional loans
• Personal investment: 10-30% of total loan amount from your own funds
• Business experience: Previous success in your industry or related field
• Collateral: Personal assets like real estate or equipment to secure the loan

Meeting multiple requirements significantly improves your approval odds.

How to get a startup business loan

Getting approved for a startup loan requires preparation and documentation. Follow these steps to strengthen your application:

For more help along the way, explore resources like SBA's small business guidance or USAGov's startup resources. If you use Xero accounting software to keep your finances organized, your loan application will usually run more smoothly.

1. Calculate your startup costs and create a business plan

Calculate your total funding needs by adding startup costs plus 6-12 months of operating expenses:

• Equipment and inventory: Tools, machinery, initial stock
• Legal and licensing: Business registration, permits, insurance
• Operating expenses: Rent, utilities, payroll, marketing for first year
• Working capital: Cash buffer for unexpected costs

Create a detailed business plan showing projected revenue, expenses, and how you will repay the loan within three to five years.

2. Show how you intend to repay the loan

Demonstrate repayment ability with monthly cash flow projections showing:

• Revenue timeline: When sales will start and grow month-by-month
• Expense breakdown: Fixed costs, variable costs, and loan payments
• Debt coverage ratio: Monthly income should exceed loan payments by at least 1.25x

Example: For a $50,000 loan with $800 monthly payments, show at least $1,000 in monthly profit after all expenses.

3. Share if you have any collateral

Your home, vehicle or other personal assets could be used as collateral. You might be able to get an unsecured loan if you're only looking to borrow a small amount.

Alternative startup financing options

Most federal grants focus on nonprofits or specific programs, so for-profit startups usually rely on other funding options. Instead, consider these proven funding alternatives:

Investment options:

• Angel investors: Provide $25,000-$100,000 plus mentorship in exchange for equity
• Venture capital: Larger amounts ($500,000+) for high-growth potential businesses
• Friends and family: Lower-pressure funding from personal networks

Self-funding approaches:

• Personal savings: Use existing funds without debt obligations
• Credit cards: Quick access but higher interest rates (15-25%)
• Home equity loans: Lower rates using property as collateral
• Investors might be a useful source of finance. You'll have to give up a share of your business but in exchange you may get a business partner and mentor with valuable experience and knowledge. Learn how to find investors.
• Friends and family can be a source of funds, either as investors or lenders. If you choose this route, get things in writing to protect your relationships. Explore the pros and cons of approaching friends and family.
• Crowdfunding is another finance option. It can take a lot of work to put together your pitch and your idea really needs to stand out to get traction. Find out how crowdfunding works.
• Collateral usually helps you qualify for larger loan amounts. Get an introduction to peer-to-peer lending.
• Bootstrapping is the do-it-yourself method. You use your savings, personal credit cards, personal loans, or maybe refinance your home. This approach puts your personal finances on the line, so think carefully about how it could affect you if the business takes longer to grow than you expect.
• A Small Business Administration (SBA) loan could be a good option if traditional banks have declined your application. The SBA works with lenders and backs part of the loans they make, therefore reducing their risk. Some SBA loans also come with support to help you get your business running.

Simplify your startup financing with organized records

Whether you're applying for a startup loan or funding your business another way, having organized, up-to-date financial records is key. Xero accounting software helps you manage your finances from day one, so you can build your business with confidence and make a stronger case to lenders.

Support your business launch and get one month free.

FAQs on startup business loans

Here are some frequently asked questions about startup business loans and financing:

How much can a new business get approved for?

Yes, you can borrow money to start a business. Most lenders require a 650+ credit score, detailed business plan, and either collateral or 10-20% personal investment. If traditional banks decline your application, consider SBA loans, online lenders, or alternative funding like investors or crowdfunding.

What is the average monthly payment on a startup loan?

Startup loan approval rates average 20 to 30 percent at traditional banks, but you can increase your chances by strengthening your application. Focus on these key factors: maintain a 650+ credit score, invest 15-25% of your own money, and demonstrate relevant industry experience or transferable business skills in your application.

Can I get a startup loan with no collateral?

Yes, limited liability companies (LLCs) can get startup loans. Your business structure does not affect loan eligibility, because lenders focus on your personal credit score (650 or higher is preferred), repayment plan, and collateral. As an LLC owner, you will usually need to provide a personal guarantee, which makes you personally responsible for repaying the loan.