Start Up Loans For Small Businesses: The Guide


You decided to quit your day job and become your own boss. Great, now you need capital for your new small business. In general, if you are a start up, banks will not give you a loan to finance your new small business venture.

However, there is some start up loans for small businesses. You can choose from various sources such as P2P sites or even credit cards. Many new young entrepreneurs used this type of funding.

So if you are ready to start your own business, you should read some facts first. Recent reports have shown that young entrepreneurs are much more optimistic than in recent years when it comes to the state of their businesses this year.

Here are some of the ideas I could come up with so you will not have to search throughout the vast depths of the internet.

Start up loans for small businesses

First of all, what is a small business? According to Forbes, a small business is every business that is operating on less than 500 employees. Even more shocking news, 99.7% of all businesses in the U.S. are considered small businesses.

Okay, what is a loan? If you look at Investopedia under the term “loan” you would see the following: an act of giving away your money, asset or any other material good in exchange for future repayment. There are two different types of loans, secured and unsecured loans. A secured loan is when you take a loan and it is backed by an asset (your car, home, boat, etc.) and an unsecured loan is not backed by anything and, therefore, it has a higher interest rate as it is considered riskier.


Here is some start up loans options for small businesses:

Family and friends

I know, I know, asking you family or even a friend to borrow you money for something can be considered rather awkward, but it does not have to be. You can do the following. Try to treat the whole process just as professionally as you would if you asked a loan at your local bank. Draft up an agreement and a repayment plan, in other words, be a professional. Some other tips when borrowing from your family and friends:

  • Be realistic. Do not go over the top and ask for millions. What I would do I draw up a simple business plan and evaluate the money I need for my start up business. Once you have repaid the initial loan, you will be in much more favourable position and you can ask for more if needed.
  • Again, be a professional. If you plan to take a loan from your family or friends, make a formal, written agreement and agree on a payment rate.
  • You should notify your lender (friends or family member) your progress and share updates as your business grows. When you are checking in, you show a certain level of professionalism.

Use your home as equity

Do you have a home with more than 15% equity? If the answer is a yes, you might qualify for a loan based on the value of your home. For example, if your home is worth somewhere around #400,000 and your mortgage is around $200,000, your bank might give you a loan between $15,000 and $70,000. This type of loan can be a home equity loan (HEL) or home equity line of credit (HELOC).

One of the advantages of HEL or HELOC is that they can provide you with a start up capital at much lower interest rate than your typical loan. However, there is a risk. A big risk, you can potentially lose your house. Even the bankruptcy protection does not protect you when you apply for HEL or HELOC.

Credit cards

It is no secret that credit cards are a major source of financing small businesses. There is even statistics to prove it. More than 65% of small business owners use credit cards on a frequent basis.

If you are going to use credit card frequently, you should do the following:

  • Fine print. Read it. If needed, read it three times. Do not just sign a paper without checking the details. You can even hire a professional to advise you.
  • You should incorporate your business if you can. If you act as a sole proprietorship, your are the guarantor of all debts. In case your sales start to slow down, you risk your personal credit card rating.

SBA start up loan

Usually, SBA provides loans to established businesses, but they have two different programs for start-ups. These two programs are the Community Advantage Program and the Microloan program.

The Community Advantage Program lets you borrow up to $250,000 and the Microloan program lets you borrow up to $50,000. You lender will be, if you qualify for an SBA loan, an SBA-approved intermediary, such as a non-profit institution.

To qualify for an SBA loan, you should be already partially self-financed (at least 30% of your money should be invested in your startup). A benefit to this is a low-interest rate.

Venture capitalists and/or angel investors

Perhaps you could try your luck and an angel investor or a venture capitalist will invest a portion of his/hers money in your newly found business.

There is a difference between the two. An angel investor is typically a wealthy individual who is ready to buy a portion of your company. So, you get the needed cash along with some new friends, he/she gets a portion of your company.

On the other hand, a venture capitalist is usually representing a company. Same goes for the VCs. You get money and friends, he/she gets a portion of your company.


I am sure you have heard of crowdfunding. It is when you focus on raising sometimes large amounts of money from a large number number of people. Essentially, every person becomes your angel investor. In return, he/she will get the product sooner, faster access to your service, etc. You can try your luck with specialized crowdfunding websites such as Kickstart or gofundme.


As you can see from this article, there are numerous ways a potential future small business owner obtain a loan. Here is the trick, always act like a true professional, put down any agreement in writing and make sure your research is as detailed as possible.


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