Startup Funding

What is a Startup Business Loan and How Do They Work?

Financing for new small businesses is available in the form of various business loans and financing methods, such as SBA microloans, assetbased loans, business credit cards, and more. However, it can be challenging for startups to secure this type of funding due to their lack of established history. That is why Filthy Rich Idea partners with the SBA to assist startups in this process. 

No single financing option is specifically labeled as astartup business loan.” If you are seeking small business loans for a new venture, there are various types of financing that can help. You may be able to obtain a startup loan that functions as traditional debt, where you borrow money and repay it with interest. Alternatively, equity financing could be more suitable for your startupthis involves obtaining funding in exchange for shares or stock in your business. Ultimately, the most important factor is that the loan suits your business needs and is affordable.

Who Qualifies for a Startup Business Loan?

Getting a loan to start a business can be challenging, as there is no onesizefitsall option. The requirements for business startup loans will depend on the product you‘re interested in and the lender, financial institution, or investor you‘re working with. However, there are some tips to keep in mind when trying to qualify for a loan.

If you‘re looking for traditional financing, make sure the lender works with younger businessesthose with less than six months in operation may have difficulty finding such loans. Consider alternative options such as business credit cards or grants if this is the case.

If your business has been operating for more than six months, look into microlenders who may be more likely to work with your startup.

Additionally, lenders will look at your personal credit score when you apply for financing—the higher your score, the better your chances of qualifying for a loan with favorable terms and rates. Finally, if you need to improve your credit before applying for a loan, consider giving Filthy Rich Idea a call at 888-369-4332 to help you with creative funding methods to finance your business in the meantime.


Benefits of a Startup Loan

FRI Startup Loans

SBA Microloans

Considering an SBA microloan for your startup business is a great option if youre looking for a lump sum loan that can be used for a variety of purposes. These loans are available up to $50,000 with terms up to six years, and have interest rates ranging from 8% to 13%. They are also accessible to those with average credit and limited time in business, as well as minority or womenowned businesses and those operating in disadvantaged areas.

Asset-Based Financing

Assetbased financing is a type of lending that is secured by tangible collateral, such as real estate, invoices, equipment, or another asset. This makes it easier for lenders to provide business loans to startups, since the loan is backed by an asset.

Two of the most common forms of assetbased financing are invoice financing and equipment financing. Invoice financing involves a company providing an advance on outstanding invoicesup to 85% of their valuein exchange for a fee when the invoices are paid. This is ideal for B2B businesses with capital tied up in unpaid invoices.

Equipment financing allows businesses to purchase equipment with a lump sum loan from a lender, with repayment over time and interest. This is beneficial for startups who need to purchase equipment but don‘t have the capital upfront.

Business Credit Cards

If your business has been operating for less than six months or requires only a small amount of financing, a business credit card could be the ideal solution. This type of product is beneficial to any entrepreneur, but particularly helpful to those starting up.

Applying for a business credit card is simple and fast, and you can choose to borrow as much or as little as you need each month without having to provide collateral. To avoid high interest rates on unpaid balances, make sure that you pay off your balance every month.

If you need a business credit card to cover larger startup costs, look for one that offers 0% introductory APR periods. This allows you to carry a balance interestfree for a limited time, making it similar to using a free loan. After the intro period ends, however, you must pay off your balance in full or face interest at the variable APR rate.

Small Business Grants

Rather than a traditional loan, small business grants offer one of the most affordable types of startup financing as they do not need to be repaid. There are several sources for grants, including the federal government, state and local governments, and corporate organizations.

The Small Business Innovation Research Program and Small Business Technology Transfer Program are great options for businesses involved in science, technology, and innovation. Additionally, there are grants reserved for certain kinds of businesses such as missionoriented businesses, minorityowned businesses, businesses operating in specific communities, womenowned businesses, veteranowned businesses, and immigrantowned businesses.

When applying for a business grant it is important to remember that the competition can be stiff so you may spend a great deal of time on your application with no guarantee of success.

Ready to Apply?

Filthy Rich Idea makes it easy to get a business loan from the Small Business Administration (SBA). Apply online and our lending partner, Business Funding Now, will give you a decision within minutes. One of their Loan Specialists will tailor a loan package for your business needs. As soon as your application and documents are received, a dedicated Funding Advisor will be in touch to discuss the application and next steps if approved. Approval typically takes 24-48 hours, and funds can be deposited into your account the following business day. It’s that simple!

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What information and documents do I need to apply for funding?

Our lending partners will need 3 months of bank statements, the government IDs of all applicants, 1 or 2 years of business tax documents, business P&L and balance sheets, business licenses and formation documents, and a business EIN.

What is APR?

APR stands for Annual Percentage Rate and is a measure of the cost of borrowing money. It is the interest rate expressed as a yearly rate, including fees and costs associated with the loan. It's a good way to gauge the overall cost of your loan and your planned repayment schedule.

How long does it take to get the money once my business is approved?

Once approved, transfer times vary depending on the lender, but it is possible to receive your capital in as little as 72 hours after approval. Lines of credit, on the other hand, may be used immediately upon receiving approval in some cases.

How do I pay back the funding amount?

Our lenders offer secure digital payment portals so that you can make your repayments on time and without penalty. You may be able to change due dates and other important information.

How To Best Prepare for a Business Loan

Determine the amount of money you will request—and do not request an excessive amount.

Although you may have the option of a small business loan, it is important to only request the amount of money that you need and can afford to pay back. This will demonstrate to your lender that you are financially responsible and increase your chances of approval.

Understand the limitations and costs of your loan.

Before committing to a loan, be sure to consider the speed, flexibility, and cost. Some loans are more or less flexible while others charge for speed. Understand the APR and other associated fees and costs so you can make an informed decision.

Avoid taking out multiple loans.

If you already have a loan, it is not advisable to take out another one. This is calledstacking loans and is generally not allowed, except in certain cases (e.g. having a business line of credit with a term loan). If you stack loans without the permission of your original lender, you could be in breach of your loan agreement and default on your first loan. Before taking on another loan, check with your lender to make sure it is allowed.

Ready to Apply?