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Startup business loans can help entrepreneurs secure funding for equipment, inventory and other costs to get their business off the ground, but securing funding can be challenging for younger businesses. In fact, the 2023 Firms in Focus by Fed Small Business revealed that only 37 percent of employer firms under two years old received full approval for loan applications.
Because startup businesses have a limited financial runway, the application process may differ from a conventional business loan. For example, the documents needed will likely focus more closely on your personal financial history to assess creditworthiness.
And while document requirements vary by lender for startup loans, having them handy will save you time if they are required and help you answer any questions the lender poses.
- The application process for a startup loan may differ from other types of business loans.
- When business documentation is limited, lenders may request personal financial documents and a business plan for startup loans.
- Business plans can provide clarity and direction, attract investors and help you secure financing.
Documents about yourself
Assuming there is limited documentation available about your business, lenders may want to see substantial information about your personal finances and business plan before issuing a loan. Background information you will want to have on hand include:
- Your name
- Your address (and, if different, your business address)
- Social Security number
- Date of birth
- Personal bank statements
- Personal tax returns
Documents about your business
Lenders want to know your business is legitimate and that you own it. They’ll also look for early signs your business is heading for success. Gather:
- Business tax returns (if available)
- Receipts from quarterly tax payments
- Profit and loss statements
- EIN (Employer Identification Number): This acts much like a Social Security number for payments and tax documents. You can apply for one online through the IRS.
- Business licenses and permits, if applicable
- Foundational documents, including articles of incorporation
- Outstanding invoices, especially if you’re applying for invoice factoring
Writing a business plan can help you to develop a clear vision for the path ahead and can help build confidence and buy-in from potential investors. A good startup business plan will include the following elements:
An executive summary: This introduction provides an overview of your business, its objectives, and why you will be successful. Keep this section brief: ideally two pages or less. Introduce information about:
- Your business and its products or services
- The target market being served
- Your key qualifications as a business owner
- Information about the organizational structure of your business
- Pertinent background information about your business and/or market sector
- Funding information: Any capital dedicated to date and its sources, as well as your plans for future funding
Your company description: Think of this as your elevator pitch. What problem is your business solving? What differentiates it from competitors in the field?
Market research: Show your understanding of the current market conditions; underscore any noticeable themes from successful businesses in your industry.
Your product or service: Go into more detail here than was provided in your executive summary.
Marketing plan: Describe how you will build and retain a customer base.
Funding request: Go into detail here about why you are requesting funds and how this money will be used.
Other documents you may need as you prepare for a startup loan application include the following:
- Collateral information: Documents related to any assets that belong to the company. This can include equipment, technology, vehicles, real estate and bank accounts. You may need to include an appraisal to prove the asset’s worth.
- Personal guarantee: A clause in your loan agreement stating you take personal liability for the debt.
- Business loan proposal: This document outlines the financial needs and repayment plan if a business secures a loan.
Documents for a startup SBA loan
In addition to the documents listed above, applications for Small Business Administration-backed startup loans require extra documentation. Be prepared also to provide:
- Financial plan: Describe your projections for the next one to five years. This should inspire confidence in lenders about the stability of your business.
- Appendices: Any supporting documents that may strengthen your funding request and provide more context about your business.
- SBA forms: The SBA has its own application forms you must complete. Requirements will vary by loan. For example, 7(a) loans require Form 1919 and Form 1920.
The bottom line
Lining up your documentation in advance can ensure a straightforward application process once you are ready to apply for funding. Having the information handy can also demonstrate your readiness to secure funding and grow as a business.
Once you collect this paperwork, you can use these documents to apply for all kinds of business loans and business lines of credit.
Frequently asked questions
The minimum credit score required for a business startup loan is 500, but this requirement varies by lender.
The requirements for a business loan are determined by the lender, but lenders typically consider the same factors, including credit score, age of business and annual revenue.
Obtaining a startup business loan can be challenging due to the perceived risks associated with new ventures. However, if you meet the lender’s requirements and present a strong business plan demonstrating the business could be a success, securing startup funding could be easier.