Funding Options for Startups:

One of the most critical factors for many  small business entrepreneurs preparing to start a business is securing funding. Without sufficient initial operating capital, it can be challenging to launch a business, making it essential to understand the available loan options.  We will explore various startup loan options in the U.S.

1. Why Is It Difficult to Get a Startup Loan?

Obtaining a small business startup loan in the U.S. is challenging because of the high risk involved. Generally, banks and the Small Business Administration (SBA) require at least two years of tax returns for business loans. This means that if you are starting a new business from scratch, you typically need at least two years of operational history to qualify for a loan. However, if you are purchasing an existing business, you may be eligible for an SBA loan.

2. Acquiring an Existing Business – SBA Loan Option

An SBA (Small Business Administration) loan is a bank loan that is partially guaranteed by the U.S. government (70% to 85%), allowing borrowers to access relatively low interest rates and long repayment terms (10 years for businesses, 25 years for real estate). Acquiring an existing business can be a more stable option than starting from scratch, reducing the initial operational risks.

Eligibility Requirements for an SBA Loan to Acquire an Existing Business:

• The business must have tax returns for the past 2-3 years
• The buyer must provide 2-3 years of personal tax returns
• A minimum 10% to 30% down payment is required
• If purchasing both the business and real estate, a minimum 10% down payment is required
• Only green card holders or U.S. citizens are eligible to apply
• A personal credit score of at least 660 is required

3. Utilizing an Existing Business for SBA or Other Loan Options

If you already own and operate a business, you may be able to secure additional funding through an SBA loan or other business loan programs.

SBA Loan Requirements:

• Minimum 2 years of business tax returns
• Personal credit score of 660 or higher

Short-Term Non-Bank Business Loan Programs:

• Requires a personal credit score of at least 550
• Offers fast and simple approval
• Higher interest rates and shorter repayment terms

4. Home Refinancing or Equity Loans (Asset-Based Loans)

If you own a home or real estate, you can secure startup capital using the following methods:

• Real Estate Refinancing: Restructuring an existing mortgage to access additional funds
• Home Equity Loan: A loan secured by the value of your home
• Home Equity Line of Credit (HELOC): A revolving credit line based on home equity

Final Thoughts

Securing a startup loan in the U.S. is not easy, but with the right information and thorough preparation, you can successfully obtain funding. Carefully evaluate loan options that match your business model and financial situation, and take the necessary steps to prepare for a successful business launch!