How to get a business loan for your online startup

How to get a business loan for your online startup

When it comes to getting a startup loan for your online business, you need to understand you're in a competitive area since everyone is thinking the same thing, so you better have all the right information and amazing statistics to back up the need for getting a business loan.  On a brighter side of things, a business loan for your online startup can alleviate the pressure of figuring out how to make money right away to purchase bigger servers or bring on a programmer to get that one feature scripted up on your website.

Most online startups will need to be in business for a little while and show a positive cash flow before they think of applying for a business loan.  Would you give someone $10 if they said they would pay you back but they never had money?  Or would you rather give $10 to a person who usually has money and would likely pay you back?  That's what the bank thinks of in terms of your credit reports and the cash flow going through your business.  If it's all positive and they can trust you, you'll likely get a business loan, but the amount really depends on what you can pay back.  You'll never want to get a loan for $500,000 and agree to pay it back in 6 years if you're only making $30,000 a year with your current business model.  Now, if you were making $80,000 before you applied for the loan, you could easily live off of $30,000 a year and put the extra $50,000 into paying back the loan and that would mean any new profit goes right back into the bank account to build your business.  Eventually, you'll need to pay back more than $50,000 a year so remember how much you owe and what the interest rates are.

Always have a detailed business plan
When you're going into a bank or lending establishment, you will always want to have a well ironed out business plan as well as an exit strategy in order to show them you've planned for everything.  If you go in and say "I'm making $50,000 a year and need a $250,000 loan!" they'll have you escorted off the premises and ask you never to come back.  Ok, they'll really just sit you down and see what they can do for you, which will likely be nothing because you don't know what you want to do exactly and they can't assess your situation more than looking at how much money you have in your account at the time of applying.

You MUST have a good credit score
If you want the best business loan possible for your online venture, you MUST have a good credit score.  If you don't have good credit, you won't be getting any sort of business loan from any establishment, so be sure to work on your credit before you even apply.  I say this because you likely get one shot at applying and you need to make it count.  Sure, you could go in 10 different times and try to apply, but they'll remember who you are and see the difference between then and now, which might not be a good thing if nothing has changed.  So, build up your credit as high as possible before you even think about going for a business loan to fund your online ventures.

Have some of your own money ready to invest
Banks and lenders will look at what you already own, your assets, and determine if they can trust you with their money.  If you have a little bit of funding already that you want to use for the business, it will show the bank or lending party that you're serious about this venture and you're willing to spend your own money on it, you just don't have enough to do what you really want to.  A general rule of thumb is that you should have 30% of what you're asking for.  So, if you want a $100,000 loan, you should have $30,000 in your account and ready to purchase everything you need.  Save up your money if you haven't started already and then go apply for a loan when you have 30% of what you need to actually do what you want to online.  The good thing about an online venture is you usually don't need as much funding since you don't need to rent out any sort of office building in the beginning


In conclusion
Applying for the loan is the easy part of this entire process, actually getting the loan is the difficult part because you need to have everything just right in order to please the bank or lending establishment.  If you do have great credit, positive cash flow, and 30% of what you're asking for then you'll likely get what you want and be on your way   Just remember to pay them back in a timely manner so your credit doesn't suffer!


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Tommy Carey