Written by Can I get a loan for a small startup business with no collateral?
It is possible to get a loan for a startup – though your options will generally be more limited than they would be for a more established business.
When you apply for a standard business loan, the lender will traditionally look at details like how established the business is, how long it’s been trading and its customer base. With a startup, those details are either absent or very limited; you might only have a few months of trading to base your application on, if any. This can make it a lot harder to persuade a lender to loan the money if you’re a startup business with no assets to offer as security. However, there may still be finance options available to you:
- Business startup loans: specifically designed for new businesses, these loans can provide essential funding to help you get started. Be aware that not all lenders will offer this type of loan and you will typically have lower borrowing limits, shorter repayment periods and higher interest rates. It will also generally require a strong credit history or personal guarantee.
- Unsecured business loans: these loans don’t require physical assets as security but often come with higher interest rates and stricter eligibility criteria than secured loans to balance out the risk.
- Personal loans: personal finance could be an alternative option for small business owners who can’t meet the requirements of a business loan. These are based solely upon the individual applicant’s financial situation, such as their credit score, income and expenses.
What other funding options are available for startup businesses?
It’s not uncommon for startup owners to use a mix of methods to finance their business. When getting your business off the ground, you may also want to consider other types of funding, such as:
- Equity funding: this involves getting an investor or group to back your startup business. While this can be an effective way to secure capital, it also means you’ll need to give them a cut of the profits and they will often have a say in how the business is run.Â
- Credit cards: business or personal credit cards can provide short-term funding, and often come with a 0% interest introductory period. However, you must pay off the balance before the grace period ends to avoid high and they are best suited for covering smaller, immediate expenses rather than significant business costs.
- Government grants: you may be eligible for government support to help get your small startup business off the ground. Both federal and state/territory governments offer funding programs and assistance for small businesses and startups, from grants and subsidies to mentorship and business development programs. Government funding is highly competitive, it’s worth researching available programs and ensuring your business meets the eligibility criteria before applying.
How much can I borrow for a business loan for my startup?
Business loans can range from a few thousand dollars to millions, but startups—especially those without assets for security—will typically have lower borrowing limits. Many lenders cap startup business loans at around $500,000, though some may only offer amounts in the $5,000–$100,000 range, depending on factors such as your credit history, income, and business model.
In addition to the loan amount, it’s important to consider the overall cost of borrowing, including:
- Interest rates: startup loans generally have higher rates than those for established businesses, depending on the lender and risk level.
- Fees: lenders may charge application fees, establishment fees and ongoing service or late payment fees, which can add to the cost of your loan.
Once your business is more established and has built up assets, you may have the option to refinance for better terms. This could include securing a lower interest rate, extending the repayment period, or even switching to a secured loan with a higher borrowing limit.
What documents should I prepare for a small startup business loan application?
If you’re applying to a lender to finance your startup business, there’s a number of documents that you’ll need to provide your lender with:
- A detailed business plan: to persuade a lender that you know what you’re doing when launching a startup business, you’ll need to have a comprehensive business plan what your business is going to do, how you’re planning to do it and what steps you’re going to take to make it happen.
- Research on your market: you’ll also need to do some homework on the market you’re moving into. Who is your target audience? Who are your major competitors? What are the threats to both your specific business and your industry as a whole? Your lender will do their own research as well, but by supporting your business plan with information on your target market, you’re demonstrating that you’ve thought these issues through and accounted for them.
- Financial and business records of any trading to date: if your startup is already doing business, you’ll want to include records of how it’s done financially so far. This doesn’t necessarily give a very reliable picture of how the next few months will go, but it’s better than no information at all.
- ID and supporting documents: ID and some supporting documents will also be required, which include your personal bank statements – given your business doesn’t have a track record at this point, you’ll probably find that more weight is placed on your own credit and financial history.
What can I do to improve my chances of loan approval?
Use a guarantor
If you have a friend or family member with strong finances, they could act as a guarantor on your loan. This means they agree to cover the repayments if you're unable to, which can make lenders more willing to approve your application.
Put down a deposit
If you’re borrowing for equipment or another asset, contributing some of your own funds upfront can improve your chances of approval. A deposit reduces the lender’s risk and may even help you secure better loan terms, such as a lower interest rate.
Improve your credit score
Since your business has little or no credit history, lenders will often assess your personal credit score (and those of any business partners or directors). A strong personal credit history can improve your eligibility for a loan, so it’s worth taking steps to build and maintain a good credit rating.
Prepare a solid business plan
Lenders want to see that your startup has a clear plan for generating revenue and repaying the loan. A well-prepared business plan that outlines your market research, financial projections, and growth strategy can increase your credibility.
Choose the right lender
Some lenders specialise in startup financing or unsecured loans, while others prefer working with established businesses. Researching and applying with lenders that cater to startups can improve your approval chances.
The types of business finance
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