How to get a startup loan
Do you need money to get a business idea off the ground? Then you probably need a startup loan. So how can you get one?
Updated Wednesday 9 July 2025
Table of contents
Key takeaways
- A startup loan isn’t a specific loan type — it’s often a term loan or line of credit used to fund new businesses.
- To qualify, you’ll typically need collateral, personal investment, relevant experience, or good credit history.
- Lenders want to see a solid business plan and repayment strategy, even if you’re pre-revenue.
- Alternative financing options include SBA loans, investors, friends and family, crowdfunding, P2P lending, or bootstrapping.
What is a startup business loan?
A startup business loan is funding used to launch or expand a young venture. While the U.S. Small Business Administration (SBA) helps small businesses get financing by setting guidelines for lenders, they usually only make direct loans in declared disaster scenarios. For most startups, SBA-backed loans are issued by approved lenders who follow SBA rules—making it a little easier to qualify.
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.
Types of bank loans for your business
In most cases, a startup loan will be a term loan or, less commonly, a line of credit. Here’s how they work:
- Term loan: A lump sum that you pay back over a set period of time. You’ll pay interest on the money borrowed, at a fixed or variable rate. If you’re able to provide collateral you’ll probably be offered a lower interest rate.
- Line of credit: A set amount that you can draw on when needed. It works like a credit card but has a lower interest rate. These are more commonly given to existing businesses with a track record of earning money.
What are the qualifications for a startup business loan?
To qualify for a startup loan, you’ll need to show lenders that you can repay the money — even if you don’t yet have business revenue.
Banks and financial institutions are more likely to lend to a startup if they can see you have:
- some previous experience with a successful business
- invested a large chunk of your own money
- collateral
- good credit history
Having at least one of these factors will significantly improve your chances of securing a traditional bank loan.
How to get a startup business loan
Once you’ve chosen the right funding source, follow that source’s application process and gather your supporting documents (like financial statements, a business plan, or credit background).
For more help along the way, explore resources like SBA’s small business guidance or USAGov’s startup resources . If you’re using Xero, remember to keep your finances organized: it’ll make your application run more smoothly.
You can help your chances of getting a loan by following these steps.
1. Get your financial requirements and business plan together
Figure out how much you need to build the business and run it in the early days (before revenue starts to flow). Show the bank a business plan that demonstrates how your business will succeed. Be sure to acknowledge the risks along the way.
2. Show how you intend to repay the loan
Include a budget showing how you’ll afford repayments and when. Lenders need to see a clear path to repayment, including how you'll cover both principal and interest payments.
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
Some entrepreneurs hope to secure free government money to fund a startup. However, there are no federal grants for starting a for-profit business. Learn more from USA.gov . You can explore private grants, pitch competitions, or local contests, but in most cases you’ll turn to loans, investors, or personal savings instead.
Beyond traditional bank loans, you have several other financing options:
- 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.
- Without collateral, you'll typically qualify for smaller loan amounts. Get an intro to P2P lending.
- Bootstrapping is the do-it-yourself method. You use your savings, personal credit cards, personal loans, or maybe refinance your home. This approach carries significant personal financial risk – if your business doesn't succeed, it could seriously impact your personal financial situation.
- 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.
Make your startup financing easier with Xero
Whether you're applying for a startup loan or funding your business another way, having organized, up-to-date financial records is key. Xero’s 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.
FAQs on startup business loans
Here are some frequently asked questions about startup business loans and financing:
Can I borrow money to start a business?
Yes. You usually need a workable business plan, good credit, or collateral to show lenders you can repay them. If a bank loan is hard to get, consider investors, friends and family, crowdfunding, or government-backed loans.
Is it difficult to get a startup business loan? (H3)
It can be. Traditional lenders often want a solid track record and collateral. If you’re new, you can improve your chances by creating a strong business plan, showing how you’ll repay the loan, and highlighting any relevant experience you have.
Can an LLC get a startup loan? (H3)
Yes. Whether you operate as an LLC, sole proprietor, or another structure, lenders typically look at your credit, how you’ll repay the loan, and if you can offer collateral. Be ready with a strong plan and any security you can provide.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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