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How to Write a Successful Business Plan for a Loan

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Table of Contents

What does a loan business plan include?

What lenders look for in a business plan, business plan for loan examples, resources for writing a business plan.

A comprehensive and well-written business plan can be used to persuade lenders that your business is worth investing in and hopefully, improve your chances of getting approved for a small-business loan . Many lenders will ask that you include a business plan along with other documents as part of your loan application.

When writing a business plan for a loan, you’ll want to highlight your abilities, justify your need for capital and prove your ability to repay the debt. 

Here’s everything you need to know to get started.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

A successful business plan for a loan describes your financial goals and how you’ll achieve them. Although business plan components can vary from company to company, there are a few sections that are typically included in most plans.

These sections will help provide lenders with an overview of your business and explain why they should approve you for a loan.  

Executive summary

The executive summary is used to spark interest in your business. It may include high-level information about you, your products and services, your management team, employees, business location and financial details. Your mission statement can be added here as well.

To help build a lender’s confidence in your business, you can also include a concise overview of your growth plans in this section.

Company overview

The company overview is an area to describe the strengths of your business. If you didn’t explain what problems your business will solve in the executive summary, do it here. 

Highlight any experts on your team and what gives you a competitive advantage. You can also include specific details about your business such as when it was founded, your business entity type and history.

Products and services

Use this section to demonstrate the need for what you’re offering. Describe your products and services and explain how customers will benefit from having them. 

Detail any equipment or materials that you need to provide your goods and services — this may be particularly helpful if you’re looking for equipment or inventory financing . You’ll also want to disclose any patents or copyrights in this section.

Market analysis

Here you can demonstrate that you’ve done your homework and showcase your understanding of your industry, current outlook, trends, target market and competitors.

You can add details about your target market that include where you’ll find customers, ways you plan to market to them and how your products and services will be delivered to them.

» MORE: How to write a market analysis for a business plan

Marketing and sales plan

Your marketing and sales plan provides details on how you intend to attract your customers and build a client base. You can also explain the steps involved in the sale and delivery of your product or service.

At a high level, this section should identify your sales goals and how you plan to achieve them — showing a lender how you’re going to make money to repay potential debt.

Operational plan

The operational plan section covers the physical requirements of operating your business on a day-to-day basis. Depending on your type of business, this may include location, facility requirements, equipment, vehicles, inventory needs and supplies. Production goals, timelines, quality control and customer service details may also be included.

Management team

This section illustrates how your business will be organized. You can list the management team, owners, board of directors and consultants with details about their experience and the role they will play at your company. This is also a good place to include an organizational chart .

From this section, a lender should understand why you and your team are qualified to run a business and why they should feel confident lending you money — even if you’re a startup.

Funding request

In this section, you’ll explain the amount of money you’re requesting from the lender and why you need it. You’ll describe how the funds will be used and how you intend to repay the loan.

You may also discuss any funding requirements you anticipate over the next five years and your strategic financial plans for the future.

» Need help writing? Learn about the best business plan software .

Financial statements

When you’re writing a business plan for a loan, this is one of the most important sections. The goal is to use your financial statements to prove to a lender that your business is stable and will be able to repay any potential debt. 

In this section, you’ll want to include three to five years of income statements, cash flow statements and balance sheets. It can also be helpful to include an expense analysis, break-even analysis, capital expenditure budgets, projected income statements and projected cash flow statements. If you have collateral that you could put up to secure a loan, you should list it in this section as well.

If you’re a startup that doesn’t have much historical data to provide, you’ll want to include estimated costs, revenue and any other future projections you may have. Graphs and charts can be useful visual aids here.

In general, the more data you can use to show a lender your financial security, the better.

Finally, if necessary, supporting information and documents can be added in an appendix section. This may include credit histories, resumes, letters of reference, product pictures, licenses, permits, contracts and other legal documents.

Lenders will typically evaluate your loan application based on the five C’s — or characteristics — of credit : character, capacity, capital, conditions and collateral. Although your business plan won't contain everything a lender needs to complete its assessment, the document can highlight your strengths in each of these areas.

A lender will assess your character by reviewing your education, business experience and credit history. This assessment may also be extended to board members and your management team. Highlights of your strengths can be worked into the following sections of your business plan:

Executive summary.

Company overview.

Management team.

Capacity centers on your ability to repay the loan. Lenders will be looking at the revenue you plan to generate, your expenses, cash flow and your loan payment plan. This information can be included in the following sections:

Funding request.

Financial statements.

Capital is the amount of money you have invested in your business. Lenders can use it to judge your financial commitment to the business. You can use any of the following sections to highlight your financial commitment:

Operational plan.

Conditions refers to the purpose and market for your products and services. Lenders will be looking for information such as product demand, competition and industry trends. Information for this can be included in the following sections:

Market analysis.

Products and services.

Marketing and sales plan.

Collateral is an asset pledged to a lender to guarantee the repayment of a loan. This can be equipment, inventory, vehicles or something else of value. Use the following sections to include information on assets:

» MORE: How to get a business loan

Writing a business plan for a loan application can be intimidating, especially when you’re just getting started. It may be helpful to use a business plan template or refer to an existing sample as you’re going through the draft process.

Here are a few examples that you may find useful:

Business Plan Outline — Colorado Small Business Development Center

Business Plan Template — Iowa Small Business Development Center

Writing a Business Plan — Maine Small Business Development Center

Business Plan Workbook — Capital One

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U.S. Small Business Administration. The SBA offers a free self-paced course on writing a business plan. The course includes several videos, objectives for you to accomplish, as well as worksheets you can complete.

SCORE. SCORE, a nonprofit organization and resource partner of the SBA, offers free assistance that includes a step-by-step downloadable template to help startups create a business plan, and mentors who can review and refine your plan virtually or in person.

Small Business Development Centers. Similarly, your local SBDC can provide assistance with business planning and finding access to capital. These organizations also have virtual and in-person training courses, as well as opportunities to consult with business experts.

Business plan software. Although many business plan software platforms require a subscription, these tools can be useful if you want a templated approach that can break the process down for you step-by-step. Many of these services include a range of examples and templates, instruction videos and guides, and financial dashboards, among other features. You may also be able to use a free trial before committing to one of these software options.

A loan business plan outlines your business’s objectives, products or services, funding needs and finances. The goal of this document is to convince lenders that they should approve you for a business loan.

Not all lenders will require a business plan, but you’ll likely need one for bank and SBA loans. Even if it isn’t required, however, a lean business plan can be used to bolster your loan application.

Lenders ask for a business plan because they want to know that your business is and will continue to be financially stable. They want to know how you make money, spend money and plan to achieve your financial goals. All of this information allows them to assess whether you’ll be able to repay a loan and decide if they should approve your application.

On a similar note...

Home > Finance > Loans

How to Get a Startup Business Loan

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Learning how to get a startup business loan can feel overwhelming, especially because you have to prove that you’ll meet the loan requirements and are worth the risk despite your burgeoning business. But if you can explain precisely why you need a loan, how you’re going to use it, and how you will repay it, you can qualify. Easier said than done, right? We’ll walk you through these six steps to make the doing part a little easier

Lendio partners with over 75 lenders, which improves your odds and efficiency to get the funding you need.

Qualifications:

$50k in revenue

6 mos. in business

560 credit score

• Create a business plan
• Itemize your business costs
• Prove you qualify for a loan
• Determine the type of loan you need
• Carefully choose a loan provider
• Consider alternative funding options

The takeaway

Related reading, 1. create a business plan.

Think of this as the roadmap to your business’s success—including all of the business financing you’ll need to succeed. Having a plan that covers how you’ll fit into a market, attract customers, make money, etc. can help lenders see how their loan fits into your business needs. And be sure to show your working capital, market growth potential, and revenue plans since lenders are most interested in the money. Make it as detailed as you can to help show that you’re going to be a good borrower.

2. Itemize your business costs

This sounds simple enough, but it actually requires meticulous detail. You have a lot of startup business costs to consider, after all. Some recurring costs include things like rent, utilities, salaries, employee benefits, supplies, and any other materials, services, items, etc. that you need. You’ll also need to look at one-time costs like conducting market research , outside training, consultant fees, office furniture, etc. And it’s important to look at hidden costs so that nothing gets left behind. Like does the company pay for Joanne’s lunch? Or stock the vending machines? Or provide coffee? These may seem like simple, benign details but those charges can quickly add up. You want to ensure that you’re both careful with your money and that you know how much money to ask for when applying for funding.

3. Prove you qualify for a loan

You’ve pitched why someone should give you money. Now you need to give some proof to back up your plan. Lenders want to see your working capital, revenue, sales history, and any other cash flow. They’ll also consider things like personal and business credit scores , debt-to-income ratio, time in business, collateral, and personal assets. The more you can show, the better. They want to ensure you can repay the loan.

4. Determine the type of loan you need

So you’ve finished your business plan and are ready to prove you’ll be an ideal borrower. Now it’s time to be choosy with the type of loan you apply for. You want to ensure you can meet the loan terms, after all. The good news? There are many business loans for startups .

If you’re able to qualify, apply for a traditional loan through a bank because you’ll likely get the best loan rates. However, it’s difficult for startup businesses to qualify for a traditional bank loan. So if your bank is a no-go, consider some alternatives, most often provided through online lenders. These alternatives can also help you build your business credit—just make sure that your loan reports to the Big 3 (that is, the credit agencies). If your loan and payments don’t show up on your credit report, you won’t build your credit. And that would be a shame.

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SBA startup loans (that is, loans backed by the Small Business Administration) offer competitive rates for those who qualify. They offer an SBA microloan program, disaster relief, long-term loans, real estate loans, equipment financing, and more. But their qualifications are strict: you’ll need at least two years in business, $100,000 in annual revenue, and a minimum credit score of 680. Plus, you must have exhausted other financing options. But their low interest rates and favorable terms make them worth the application if you can qualify.

When you need financing for a variety of needs, a cash loan may be your best option. While alternative loan providers can provide you with much-needed money, their loans often come with high interest rates, especially if you have bad credit. However, if you’ve got a plan to repay the loan, the cost could be worth it if it helps you grow the business. You could also consider taking out a microloan to improve your credit report so you get better rates in the future.

Peer-to-peer lending

With peer-to-peer lending , you get money directly from investors, usually through a third-party website. You still pay interest and it works much like a term loan, but they’re often easier to qualify for.

Invoice factoring

Do your cash flow troubles come from unpaid invoices? If so, invoice factoring can be a good financing option because the loan is paid off when your borrowers pay their invoices. It’s an attractive financing option for people with bad credit because a lender will consider the creditworthiness of those who owe you money when determining whether you qualify for the loan. Just remember that you’ll be responsible for any invoices that aren’t paid, so have a plan B in place in case your delinquent accounts fail to pay up.

Lines of credit

Lines of credit are similar to credit cards in that you get approved for a loan amount and then you only pay off what you use. So you can get money when you need it without borrowing unnecessarily. It’s a great option for those who aren’t sure how much financing they’ll need.

Equipment financing

This type of loan can apply to a variety of equipment from heavy machinery to outfitting an office. Equipment financing often has more attractive interest rates, especially if your equipment is valuable, because the equipment itself acts as collateral for the loan. Bonus: they may offer lower interest rates than other online lending platforms.

Merchant cash advance

Merchant cash advances (MCAs) can be a good financing option if you’re really strapped for cash and you sell goods. MCA lenders take a percentage of your sales to help pay back the loan. But MCAs have extremely high APRs, so only use them for short-term loans and consider other alternatives whenever possible.

Real estate loans

Commercial real estate loans tend to have lower interest rates if you have good credit (and you probably shouldn’t apply if you have bad credit since they’re long-term loans). And you’ll want to be confident in your piece of real estate so you’re not financing something you won’t need before you finish your monthly payments.

5. Carefully choose a loan provider

There are many alternative options for small business loans. The right one for you depends largely on what you qualify for and how high your startup costs are, but here are some of our favorite online lenders for startups.

Best loan providers that accept businesses less than a year old

Best loan providers that accept businesses more than a year old

6. consider alternative funding options, business credit cards.

Like lines of credit, business credit cards can help you have a flexible cash flow. To qualify for a business credit card, you’ll need a good personal credit score and a good debt-to-income ratio (traditionally 36% or less)—at least if you want competitive rates. Most business credit cards require that you give a personal guarantee on the card to act as collateral. To improve your business credit report , ensure your credit card company reports to the credit agencies and that you pay the balance from your business account.

Set your business up for success with a checking account that has no monthly or overdraft fees and earns you up to $5,000 in interest each year.

Venture capital

Venture capitalist firms finance startup businesses with high potential in exchange for future equity in the company. Venture capitalists take on a lot of risk working with startups, but they also have the potential to get great rewards if the company really takes off. Venture capitalists also can have a lot of control in the company, which is a double-edged sword. On the one hand, they can be invaluable mentors. On the other hand, you may lose more control than you’d like since they’re the ones controlling the purse strings.

Crowdfunding

Different types of crowdfunding sites can help you secure funding without interest. With equity crowdfunding, people invest in your business in exchange for equity in the company. Rewards-based crowdfunding often goes through crowdfunding platforms like Kickstarter and Indiegogo, and they usually work best for niche markets, businesses who already have a base, and artistic pursuits. Donation-based crowdfunding, often done through platforms like GoFundMe, is usually most successful for non-profits and don’t often result in a lot of money.

Angel investors

Angel investing is similar to venture capitalism where someone invests in your business in exchange for equity or shares. It can be difficult to find an angel investor—the qualifications to become one are pretty strict—and, like with venture capitalists, you run the risk of finding someone who may take a lot of control of the company. But they can also be a great source of cash flow and may provide some valuable advice.

While finding financing can feel daunting, having a detailed plan can help you be better equipped to qualify for a loan, find the loan that best matches your needs, and follow a payment plan. With your much-needed funding, you can take your startup to great places.

Do you have experience getting a startup business loan? Tell us about it in the comments!

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How to write a business plan

• Starting Up

A robust business plan is crucial to the success of your new business.

A well-written business plan is important when you’re about to start a business opens in new window .

A business plan is a document that gets to the heart of what your business does, how it works and – most importantly – what makes it different and what will help it succeed.

A good business plan should:

• explain your business objectives opens in new window ;
• be a roadmap that can help you achieve your business objectives;
• highlight potential problems so that you can avoid them impacting on the business;
• identify opportunities and gaps in the market opens in new window ;
• detail shortcomings such as running out of money;
• provide information to help secure a loan or investment opens in new window .

A business plan should be a living document.

Rather than file it away, use it to monitor progress and keep your new business on track.

Starting a business doesn’t come with a set of instructions.

We know that understanding the many different types of financial product in the marketplace can be difficult.

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.

Download your free copy

Writing your business plan

This guide will help you research opens in new window and write a good business plan.

It covers presentation and the audience you are writing for, the sections and information to include.

• Business Plan Structure – How to structure and order your business plan, and how long it should be.
• How to approach writing a business plan – Writing for your audience and what your plan should include.
• Business objectives – How to define your business goals over the short, medium and long term.
• Skills and experience – How to detail your experience, and how you’ll tackle any skills gaps opens in new window .
• Target customers – Who your customers are, and what your pricing approach opens in new window is.
• Market and competitors – How to analyse competitors opens in new window and identify market trends.
• Sales and marketing – What promotional activities you’ll use to attract customers opens in new window .
• Operational plans – How to define staffing opens in new window and premises needs opens in new window .
• Financials – What financial information to include, such as breakeven points and margin.
• Appendix – What to put in the appendix at the back of your plan.

1. Business plan structure

It’s important to get the structure right.

Make sure your plan is readable, clear, and easy to understand – and base your content on evidence.

To see a detailed example of a business plan structure, download our free business plan template opens in new window .

• Length – Keep the length to a 15-minute skim read, including only essential information. Put additional detail in the appendix for further reading.
• Executive summary – This appears at the beginning of the Business Plan and should be the last thing you write, summarising everything that is covered in the Business Plan. This includes the business opportunity, customer need, your business proposition and why it will be different in the market.
• Structure – Keep everything simple, using short paragraphs and bullet points, and include relevant graphs and tables, if appropriate. If using statistics, list the source of the information.
• Language – Avoid technical jargon and ‘management speak’, sticking to clear, concise language in plain English. Get a friend to proof read it for spelling errors and to highlight parts that aren’t clear.

Some things are best left out of a good business plan.

Avoid fancy graphics, needless animation and distracting sound effects.

Use readable font sizes – too much small text can make your plan hard going.

2.  How to approach writing a business plan

The foundation of any good business plan is research.

You’ll need to find out about your market opens in new window , calculate revenue forecasts opens in new window , and learn about target customers opens in new window .

A good business plan should answer crucial questions about your business.

• Work backwards – Start with your business goals or when you think that your business will start making money, and work back to figure out what you need to do to make your business profitable.
• Be realistic – Make the financials realistic, and look at worse case scenarios so you get a view of what could go wrong and what you would need to do to put things right.
• Be honest – Highlight weaknesses in the market and your business, then detail how you’ll address them and include that in the plan.
• Review the plan – Read the plan from your audience’s perspective, and double-check assumptions. Are they realistic, what could go wrong, and how would you handle a problem that cropped up?

3. Business Objectives

Business objectives opens in new window summarise what your business does and what it offers.

This section should be no longer than a few paragraphs or a single slide, providing a top-level summary of your business.

• Define your business – What does your business do? What services does it provide? opens in new window Who will access it and how much will you charge?
• Be specific – Avoid generic, one-word descriptions such as ‘ hair dressing ’ or ‘plumbing’.For example: Instead of simply writing ‘” Dog grooming opens in new window “, a better description would be: “This is a mobile dog grooming business, delivering grooming services, nutrition and exercise advice to dog owners throughout Hertfordshire. Our fleet of dog spa vans provide tailored treatments using only organic products to your doorstep.”
• Short term objectives – List what your business will achieve in the next year, or its first year of operation.
• Medium – long term objectives – What are the business goals including financial targets in the next one to two years?

Use S.M.A.R.T. objectives to help set your business goals – Specific, Measurable, Achievable, Realistic and Timely – and list both financial and non-financial goals, such as the impact it will have on customers and  how your brand will be viewed opens in new window .

For help with setting goals, read our guide on  setting business aims and objectives opens in new window .

4. Skills and experience

It’s important to show how your previous experience and skills opens in new window make you qualified to start your business.

A few lines on your experience and skills is useful here.

It’s a good idea to attach your CV as an appendix to the business plan for additional information too.

Remember to

• List relevant experience that directly relates to the new business, along with key skills that will be helpful for your start up.
• List relevant education, courses and transferrable skills such as bookkeeping opens in new window or using Microsoft Office. Explain how they’re relevant.
• Be honest about skills and experience that you lack. Explain how you’ll address this, such as training opens in new window , hiring specialist staff opens in new window or outsourcing elements opens in new window of your business.

5. Target customers

Customers are the heart of any business plan.

It’s essential to show that you understand potential customers and know what they’re looking for from your products and services.

There’s a variety of ways to learn opens in new window about your target customers, including online research, focus groups and surveys.

This information will allow you to choose the right marketing channels opens in new window to offer the ideal product at the right price.

• Include customer demographics – Summarise gender, age and average income or expenditure.
• Location, location, location – If your business is based on footfall, such as a coffee shop opens in new window , or it covers a geographic area such as mobile dog grooming, detail the location of your customers. If it’s an online business opens in new window , your reach might be nationwide, but again show the target demographic, e.g. 18 -30 male and female.
• Addressable market – What is the total size of the customer base opens in new window that would be interested in your business? For example: The addressable market opens in new window for a dog grooming business would be all dog owners in the UK that spend money to groom their pets.
• Target market – Within the addressable market, identify the number of customers your business can target opens in new window . These are customers your business can realistically reach via marketing opens in new window , and is usually constrained by location, pricing and the reach of your marketing activities.
• Customer segmentation – How would you describe large groups of your customers? What are their characteristics? How do they buy products similar to yours? For example: Dog owners who spend lots on grooming and pet services and are willing to pay for luxury treatments could be labelled ‘pampered owners’. By identifying customer groups, you can develop a service that meets their needs (in this case, luxury dog grooming services) at prices they’re willing to pay opens in new window .
• Customer need – Explain in a paragraph the problems faced by the customer, what solution your business will provide, and the benefits of that solution to the customer. For example: Many families living in England have children with gluten intolerance who can’t eat the majority of school snacks, and there are few affordable alternatives available. This business helps parents by offering a range of gluten free, affordable school snacks with packaging that’s fun for kids. This results in happy, healthy children and removes the stress parents feel when packing lunchboxes.
• Set pricing – What will your business charge for products and services opens in new window ? Show how you figured out pricing, examining costs and how much customers are willing to pay. Detail how your pricing stacks up against competitors opens in new window . Is it lower or higher? Why would customers pay more? How can you afford to price it less? Remember being cheaper isn’t always the best way to start a business.

For methods to find out more about your customers, read our guide to  market research techniques opens in new window .

6. Market and competitors

Use your business plan to examine the market opens in new window that you’ll be operating in.

Knowing what’s happening in your market, which competitors you need to monitor opens in new window , and their strengths and weaknesses, lets you exploit gaps in the market that will help your business succeed.

This is your chance to show that you really understand your market and ensure your business is able to respond quickly to changing market conditions.

This section should include:

• Market overview – Describe the general market in a few paragraphs, highlighting trends and developments that could be an opportunity. Trends include sales growth opens in new window , new technology, greater efficiencies or new routes to market. Developments may include new regulation or legal requirements opens in new window .
• Market research – Describe briefly the research you’ve carried out, such as surveys, online research, mystery shopping or attending trade shows. Please don’t carry out your research with family and friends – use an unbiased source.
• Competitor overview – Who are the main competitors in your market? Write a short summary for each main competitor. You can include details such as market share, their products, pricing, how many customers that you think that they have, and their marketing activity.
• SWOT analysis – For each competitor and your business, conduct a SWOT analysis opens in new window . This is short for Strengths, Weaknesses, Opportunities and Threats.

What are the strengths and weaknesses of your business? How will you address these? What are the future threats that could hurt your business, and where are there potential opportunities?

It’s worth spending some time thinking about the SWOT analysis, and put the SWOT into the main body of the business plan – even the weaknesses!

• Your unique differentiator – What is different about your business compared to the competitors you’ve listed? What weaknesses does your business exploit and how will that attract customers? Explain how and why your business is different in a paragraph.

7. Sales and marketing

How you position your products or services is critical to its success.

This section of a business plan should explain how you’ll reach your customers, how you’ll sell to customers opens in new window and your marketing goals.

• How you’ll reach your customers – What marketing channels opens in new window will you use to reach your customers? Look at where competitors advertise or promote their business. List two or three key channels you can use, and summarise the activity and results you expect these channels to achieve.
• Detail your sales processes – How will you sell your products or services, for example, will you  take orders over the internet in a shop opens in new window or provide quotes for your service personally? What are the costs involved in selling? What is the average revenue per sale that you expect?
• What is your key message? – Examples could be great customer service opens in new window , more features or a higher-quality product. How will you communicate that message in your marketing activity?

If you’re starting out in marketing and advertising, you can find advice in our guide on  how to advertise your business opens in new window .

8. Operational plans

The operational section concerns how your business will work, what staffing you’ll need opens in new window , where you’ll operate from opens in new window , and the suppliers you’ll use opens in new window .

You’ll need to explain your reasoning behind each one, as well as include details such as salaries and information about your supply chain opens in new window .

• Supply chain – Good suppliers can help your business grow opens in new window , while bad suppliers can create cash flow opens in new window and operational difficulties. Research potential suppliers and shortlist the best opens in new window . What are the risks in using them,? Create a short list of intended suppliers and the relationship you have with them.
• Management – Identify the key roles in your business during start up. How will you recruit to fill the roles? Create a diagram showing the management structure, and list salaries and recruitment costs. Have they made an investment in the business?
• Staffing – What staff do you need opens in new window ? What productivity do you need from staff, such as the number of customers a staff member can serve in an hour? Provide a summary of the roles, and link to details such as salaries, working hours, activity levels opens in new window and hiring costs in the appendix.
• IT, systems and machinery – Explain the IT and infrastructure requirements of your business, such as costs involved in buying machinery and IT platforms. How long would development take and cost? Budget for buying office equipment opens in new window , and include details of information management systems opens in new window , bookkeeping, stock and quality control systems.
• Premises – Where will your business operate from? Explain your reasoning, including any specialist facilities. If you’re running a business such as a shop opens in new window , explain why you’ve selected this location. Costs related to premises can be included in the cash flow forecast.
• Legal and regulatory – If applicable, identify any regulatory authorisations, permissions, or requirements opens in new window that apply to your business, such as planning permission or food safety requirements if opening a restaurant.
• Insurance – What insurance does your business need opens in new window ? Detail who supplies it, what it covers and how much it costs. If you don’t need insurance, explain how you would handle an operational crisis.
• Risks – What could stop your business operating?

9. Financials

Financials underpin your business plan with hard numbers.

If you’re already trading, you’ll be able to use historic revenue data to forecast the profit and loss of your business opens in new window .

If you’re a start up, you’ll need to explain your assumptions and show evidence in your financial forecasts.

Complete a cash flow forecast opens in new window and include it in the appendix.

• Show historic figures – If you’re already trading, show your business activity over the past 6 months in an ‘actual’ cash flow.
• Create a one-year forecast – Show all costs the business needs to start up. Include an explanation of key assumptions such as pricing and the cost of equipment or machinery needed.
• Be realistic about funding – Identify the start up costs needed opens in new window to get your business off the ground. Explain what funding your business will need, what it will be used for, and what type of funding opens in new window you require. Include repayments of any loans opens in new window you are intending to take out.
• Risks and exit strategy – What are the risks to your financial assumptions? How will you manage these risks? If it goes wrong, what is your exit strategy from the market?

For help with working out your launch costs, read our guide on how to calculate business start up costs. opens in new window.

10.  Appendix

It’s a good idea to put further detail in the appendix, and refer to it throughout the business plan.

Assumptions explained in detail:

• CV and details about senior managers or business owners
• Market research information, such as survey results
• Insurance opens in new window and regulatory information
• Cash flow forecast opens in new window

Thinking of starting a business? Check out our free online courses in partnership with the Open University on being an entrepreneur.

Our free  Learn with Start Up Loans courses opens in new window include:

• Entrepreneurship – from ideas to reality
• First steps in innovation and entrepreneurship opens in new window
• Entrepreneurial behaviour opens in new window

Plus free courses on finance and accounting, project management, and leadership.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or its subsidiaries, or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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• Home > Blog > Small Business Financing > How to Get LLC Business Loans
• By Kelly Hillock
• May 29, 2024
• 7 mins read

How to Get LLC Business Loans

Establishing and running a Limited Liability Company (LLC) has many challenges, from managing startup costs to making sure there’s consistent cash flow for your day-to-day operations. Business loans can be specifically catered to LLCs and can be a great resource, helping you address immediate financial needs or support your long-term growth initiatives.  

In this article, we will go through the many aspects of getting an LLC business loan, including understanding what an LLC loan is, exploring different loan programs available, looking at their pros and cons, and outlining the steps to qualify and apply for LLC loans.  

What is an LLC loan?  

An LLC loan is a type of business financing specifically designed for an LLC. They have many purposes, like covering startup costs, funding expansion projects , or managing the day-to-day operations. LLC loans can be acquired from traditional banks, credit unions, or online lenders. LLC loans, backed by the Small Business Administration (SBA ), can offer more favorable terms and lower interest rates.  

LLC business loans are different from personal loans used for business expenses in several ways. Unlike personal loans, LLC loans help protect the business owner’s personal assets by limiting liability to the company’s assets. This means that if the business fails, your personal finances will not be claimed as collateral.  

Types of loan programs available for LLCs  

Several loan programs are available for LLCs, each with specific features and eligibility criteria: 

• SBA 7(A) Loans: These loans are ideal for general business purposes, offering up to $5 million with favorable terms. Eligibility requires good credit, a strong business plan, and sufficient revenue. 
• SBA 504 Loans: These loans, which offer up to $5 million, are designed for purchasing fixed assets like real estate or equipment. They require substantial collateral and a solid credit history. 
• Equipment Loans: These loans are used specifically for purchasing business equipment. The equipment itself is used as collateral. Eligibility depends on the value of the equipment and the business’s financial health. 
• Term Business Loans : These provide a lump sum to be repaid over a fixed term with set interest rates. They are available from various lenders, including banks and online lenders, with criteria based on credit score, business revenue, and time in operation. 

Pros and cons of LLC loans  

LLC loans have various pros and cons that business owners should consider before applying. 

Pros:  

• Low-Cost, Flexible Financing: LLC loans often come with competitive interest rates, especially those backed by the SBA, making them affordable for long-term growth. 
• Asset Protection: These loans help separate personal and business liabilities, protecting the owner’s personal assets. 
• Growth Opportunities: Access to substantial capital can facilitate expansion, equipment purchases, and other growth initiatives. 

Cons:  

• Personal Guarantees: Some lenders require personal guarantees, which can put personal assets at risk if the business defaults. 
• Eligibility Requirements: The borrowing costs and eligibility depend heavily on the business’s length of operation and the owner’s personal creditworthiness. 
• Complex Application Process: Obtaining an LLC loan, especially through traditional banks or the SBA, can involve extensive documentation and a lengthy approval process. 

How to qualify for an LLC loan  

You might be wondering how to get an LLC business loan. Simply put, qualifying for an LLC loan involves meeting criteria set by lenders, designed to assess the stability and creditworthiness of your business. Here are a few of them: 

• Minimum Time in Business: Most lenders require that your LLC has been in operation for at least one to two years. This period demonstrates that your business is stable and has a track record of operations. 
• Revenue Requirements: Lenders typically look for a consistent revenue stream over the past year. This requirement varies, but showing steady income helps prove that your business can handle loan repayments. 
• Credit Score Requirements: Both personal and business credit scores are important. Most lenders prefer credit scores above 670. A higher score can improve your chances of securing a loan with favorable terms. 
• Documents:  
• Proof of LLC Registration: Documents such as your Articles of Organization or Certificate of Formation. 
• Tax Returns: Personal and business tax returns from the past two to three years. 
• Financial Statements: Recent profit and loss statements, balance sheets, and cash flow statements. 
• Business Plan: A detailed business plan that outlines your company’s goals, strategies, market analysis, and financial projections. 
• Bank Statements: Personal and business bank statements for the past six months. 
• Legal Documents: Any applicable licenses, permits, and agreements related to your business operations. 

Make sure you meet these eligibility criteria and prepare the necessary documents to up your chances of qualifying for an LLC loan.  

How To apply for an LLC business loan  

Applying for an LLC business loan involves several steps. The process begins with evaluating your credit score and choosing the right loan option, followed by calculating your debt capacity, comparing lenders, and preparing a solid business plan. Here’s a detailed guide to each step. 

1. Check your credit score  

Checking your credit score ahead of time helps because it impacts your eligibility for a business loan. Lenders evaluate both personal and business credit scores , typically preferring scores above 670. You can obtain credit reports and scores from Dun & Bradstreet, Equifax, and Experian. For those with lower credit scores, alternative lenders are an option, though they may come with higher borrowing costs. 

2. Determine the right LLC loan option  

Choosing the appropriate LLC loan option depends on your specific needs. Evaluate the various loan types mentioned earlier, considering their advantages and disadvantages. Understand the credit score guidelines required for each loan type to ensure you meet the qualification criteria before applying. 

3. Calculate how much debt you can afford  

Use a business loan calculator to determine how much debt your LLC can afford. Enter the loan amount, repayment period, and annual percentage rate to find a feasible monthly payment and total interest. Consider your capital needs, expenses, and borrowing capacity. Opt for a lender offering flexible terms, transparent rates, and tailored solutions. 

4. Compare LLC loan lenders  

When comparing lenders, consider factors such as interest rates, repayment terms, funding speed, and loan amounts. These elements will help you find a lender that offers the best terms for your business’s financial situation. 

5. Create a solid business plan  

A solid business plan will help secure an LLC loan. Include an executive summary, company overview, products/services, market analysis, marketing/sales plan, organizational structure, day-to-day operations, and a funding request. This demonstrates your business’s viability and growth potential to lenders. 

6. Apply for your LLC loan  

Gather all required documentation, including proof of LLC registration, financial statements, and your business plan. Submit a complete loan application to your chosen lender. Ensure all information is accurate and thorough to avoid delays. 

7. Review your LLC loan agreement and receive funds  

Reviewing your LLC loan agreement thoroughly before signing is a big step in the loan process. Begin by carefully reading through all terms and conditions outlined in the agreement. Pay particular attention to the interest rate, repayment schedule & flexibility, any associated fees, and the total cost of the loan. Ensure that all details match the initial loan offer and your understanding of the agreement. 

Next, check for any clauses related to prepayment penalties, late payment fees, and other potential charges that could impact your financial planning. Understanding these terms helps avoid surprises later. Also verify the loan amount, disbursement process, and use of funds restrictions, if any. 

If any part of the agreement is unclear or if you have concerns, don’t hesitate to contact your lender for clarification. Ask specific questions to ensure you fully understand your obligations and the lender’s expectations. It’s better to address any issues upfront rather than face complications down the line. 

Once you are confident that you understand and accept the terms, sign the loan agreement. After the agreement is finalized, the lender will disburse the funds, typically within a few business days. This timely access to capital will enable you to move forward with your business plans, whether for day-to-day operations, expansion projects, or other financial needs. 

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Blueprint is an independent, advertising-supported comparison service focused on helping readers make smarter decisions. We receive compensation from the companies that advertise on Blueprint which may impact how and where products appear on this site. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Blueprint. Blueprint does not include all companies, products or offers that may be available to you within the market. A list of selected affiliate partners is available here .

Business loans

Our best business loans and business lines of credit ratings methodology

Ashley Harrison

Jamie Young

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Published 1:53 p.m. UTC May 28, 2024

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How we rate the best business loans and business lines of credit

We assessed 24 popular business lenders to find the best business loans and business lines of credit. In general, the best business loans and lines of credit provide a wide range of loan amounts and quick funding speeds. Some also offer perks like prepayment discounts. Additionally, several permit lower credit scores and have less strict minimum requirements for how long a business must be in operation and how much annual revenue it generates. 

We scored lenders from one to five stars according to these factors and other metrics covered below. These rankings, in turn, were used to rank the lenders in order, which determined the list of top business loans and business lines of credit. 

Get the funding you need for your business: Compare the top business loans  

Methodologies

• Business loans .
• Business lines of credit .

Business loans methodology

How we choose the products we ranked.

We choose the products included in our rankings based on a variety of eligibility factors. This includes making sure each lender is legitimate and trustworthy based on customer service, reviews and more. Additionally, we look at whether a lender’s annual percentage rates (APRs) — or factor rates, depending on the lender — are reasonable according to common practices.

We also consider if any actions have been taken against a lender by the Consumer Financial Protection Bureau (CFPB) or other federal agencies. If so, a lender could be disqualified from our rankings depending on the severity of the violations and their impact on customers.

Best business loans ranking factors

We used the following factors (with weightings) to determine our private student loan rankings:

• Loan details: 30%.
• Loan cost: 20%.
• Eligibility and accessibility: 20%.
• Customer experience: 15%.
• Application process: 15%.

These factors were chosen based on what is typically most important to borrowers. For example, a borrower will likely consider elements like loan amounts, repayment terms and eligibility criteria (like minimum credit score, time in business and annual revenue requirements) to decide if a business loan is right for their situation.

Here’s how our factors break down, with weightings for each subfactor that comprises a category. We also included explanations for how lenders could receive the highest score in each particular area:

Loan details (30%)

• Minimum loan amount (10%): Depending on your business, you might only want to borrow a small amount. In accordance with this, we gave the highest points in this area to lenders that offer loan amounts under $10,000. 
• Maximum loan amount (10%): In other cases, a business could need a large amount of funding to cover expenses. Based on this, we awarded the highest points in this area to lenders that provide loans larger than $500,000. 
• Maximum repayment term (10%): Business loan terms tend to be shorter than those of other types of loans. To earn the highest points in this area, a lender must offer terms longer than two years.

Loan cost (20%)

• Minimum APR (5%): Depending on the lender, a business loan might come with a typical APR or a factor rate. We gave the highest amount of points in this area to lenders with minimum APRs below 7%. If a lender charged factor rates, we converted that into an interest rate — if it was below 7%, that lender received full points.
• Maximum APR (5%): We awarded the highest points in this area to lenders that cap their APRs below 23%. If a lender charged factor rates, we converted that into an interest rate — if it was below 23%, that lender received full points.
• Late fees and prepayment penalties (5%): We gave points in this area to lenders that don’t charge late fees or prepayment penalties.
• Perks/rate reductions (5%): We awarded points in this area to lenders that offer perks (such as rate reductions) to their customers.

Eligibility and accessibility (20%)

• Credit score (10%): Business lenders often consider your personal credit when reviewing an application. We awarded the highest points in this area to lenders that accept credit scores below 620.
• Time in operation (10%): Lenders want your business to be stable — as such, your business must be in operation for a minimum amount of time. We gave the highest points in this area to lenders that accept applications from businesses that have operated for one year or less.  

Customer experience (15%)

• Customer service hours and access options (5%): We awarded the maximum points in this area to lenders that are available seven days per week, provide service past 6 p.m. Eastern Time (ET) and offer multiple contact options.
• Mobile app (5%): We gave points in this area to lenders that provide a mobile app to their customers.
• Trustpilot reviews (5%): Customer reviews can help you decide if it’s a good idea to work with a lender. The highest points in this area were given to lenders that have earned five stars on Trustpilot.

Application process (15%)

• Online application (5%): We awarded points in this area to lenders that provide an online application process.
• Average funding speed (10%): To earn the maximum points in this area, a lender must offer same-day funding for approved loans.

Business lines of credit methodology

We choose the products included in our rankings based on a variety of eligibility factors. This includes making sure each lender is legitimate and trustworthy based on customer service, reviews and more. Additionally, we look at whether a lender’s APRs are reasonable according to common practices.

We also consider if any actions have been taken against a lender by the CFPB or other federal agencies. If so, a lender could be disqualified from our rankings depending on the severity of the violations and their impact on customers.

Looking to borrow on an as-needed basis? Compare the best business lines of credit

Best business lines of credit ranking factors

We used the following factors (with weightings) to determine our business line of credit rankings:

• Loan cost: 15%.
• Eligibility and accessibility: 25%.

These factors were chosen based on what is typically most important to borrowers. For example, a borrower will likely consider elements like loan amounts, repayment terms and eligibility criteria (like minimum credit score, time in business and annual revenue requirements) to decide if a business line of credit is right for their situation.

• Minimum loan amount (10%): Depending on your business, you might only want to borrow a small amount. In accordance with this, we gave the highest points in this area to lenders that offer credit lines under $10,000.
• Maximum loan amount (10%): In other cases, a business could need a large amount of funding to cover expenses. Based on this, we awarded the highest points in this area to lenders that provide credit lines larger than $500,000.
• Maximum repayment term (10%): While a business line of credit can provide access to funds on an as-needed basis, you’ll often have a repayment term to pay back each withdrawal you make. To earn the highest points in this area, a lender must offer terms longer than one year (or provide ongoing access with no set term).

Loan cost (15%)

• Fees (5%): Fees can add to your overall borrowing costs. In accordance with this, we gave points in this area to lenders that don’t charge fees — such as late fees or prepayment penalties.

Eligibility and accessibility (25%)

• Credit score (15%): Business lenders often consider your personal credit when reviewing an application. We awarded the highest points in this area to lenders that accept credit scores below 620.
• Time in operation (10%): Lenders want your business to be stable — as such, your business must be in operation for a minimum amount of time. We gave the highest points in this area to lenders that accept applications from businesses that have operated for one year or less.
• Average funding speed (10%): To earn the maximum points in this area, a lender must offer same-day access to funds for approved borrowers.

How we collect data

We rely on lenders when doing our research — never on third-party sources. We research each individual lender by reviewing their website and collecting data. Then, we reach out to each lender directly to collect additional information and get clarification on any details we were unable to find on the website. 

We regularly recheck and update our lender information. Our data team also researches each lender annually to verify that the data is up to date.

In some cases, lenders don’t disclose certain details on their website and either don’t reply to our inquiries or don’t disclose the information at all. When this is the case, the lender does not receive any points for that factor at all and it’s marked as “Does not disclose.” 

USA TODAY Blueprint’s editorial standards

Every article is fact checked by our writers and editors along with our data and compliance teams to ensure we have the most accurate and up to date information. Our team uses a data-driven methodology based on what borrowers value most to determine each rating. 

We pride ourselves on our journalistic integrity and our goal is to always empower our readers to make sound financial decisions. Advertisers do not influence any of our content, opinions or evaluations.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Ashley Harrison is a USA TODAY Blueprint loans and mortgages deputy editor who has worked in the online finance space since 2017. She’s passionate about creating helpful content that makes complicated financial topics easy to understand. She has previously worked at Forbes Advisor, Credible, LendingTree and Student Loan Hero. Her work has appeared on Fox Business and Yahoo. Ashley is also an artist and massive horror fan who had her short story “The Box” produced by the award-winning NoSleep Podcast. In her free time, she likes to draw, play video games, and hang out with her black cats, Salem and Binx.

Jamie Young is Lead Editor of loans and mortgages at USA TODAY Blueprint. She has been writing and editing professionally for 12 years. Previously, she worked for Forbes Advisor, Credible, LendingTree, Student Loan Hero, and GOBankingRates. Her work has also appeared on some of the best-known media outlets including Yahoo, Fox Business, Time, CBS News, AOL, MSN, and more. Jamie is passionate about finance, technology, and the Oxford comma. In her free time, she likes to game, play with her two crazy cats (Detective Snoop and his girl Friday), and try to keep up with her ever-growing plant collection.

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• Small Business
• How to Start a Business

How to Start a Business: A Comprehensive Guide and Essential Steps

Building an effective business launch plan

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Conducting Market Research

Crafting a business plan, reviewing funding options, understanding legal requirements, implementing marketing strategies, the bottom line.

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Starting a business in the United States involves a number of different steps spanning legal considerations, market research, creating a business plan, securing funding, and developing a marketing strategy. It also requires decisions about a business’ location, structure, name, taxation, and registration. Here are the key steps involved in starting a business, as well as important aspects of the process for entrepreneurs to consider.

Key Takeaways

• Entrepreneurs should start by conducting market research to understand their industry space, competition, and target customers.
• The next step is to write a comprehensive business plan, outlining the company’s structure, vision, and strategy.
• Securing funding in the form of grants, loans, venture capital, and/or crowdfunded money is crucial if you’re not self-funding.
• When choosing a venue, be aware of local regulations and requirements.
• Design your business structure with an eye to legal aspects, such as taxation and registration.
• Make a strategic marketing plan that addresses the specifics of the business, industry, and target market.

Before starting a business, entrepreneurs should conduct market research to determine their target audience, competition, and market trends. The U.S. Small Business Administration (SBA) breaks down common market considerations as follows:

• Demand : Is there a need for this product or service?
• Market size : How many people might be interested?
• Economic indicators : What are the income, employment rate, and spending habits of potential customers?
• Location : Are the target market and business well situated for each other?
• Competition : What is the market saturation ? Who and how many are you going up against?
• Pricing : What might a customer be willing to pay?

Market research should also include an analysis of market opportunities, barriers to market entry, and industry trends, as well as the competition’s strengths, weaknesses, and market share .

There are various methods for conducting market research, and these will vary depending on the nature of the industry and potential business. Data can come from a variety of places, including statistical agencies, economic and financial institutions, and industry sources, as well as direct consumer research through focus groups, interviews, surveys, and questionnaires.

A comprehensive business plan is like a blueprint. It lays the foundation for business development and affects decision-making, day-to-day operations, and growth. Potential investors or partners may want to review and assess it in advance of agreeing to work together. Financial institutions often request business plans as part of an application for a loan or other forms of capital. 

Business plans will differ according to the needs and nature of the company and should only include what makes sense for the business in question. As such, they can vary in length and structure. They can generally be divided into two formats: traditional and lean start-up. The latter is less common and more useful for simple businesses or those that expect to rework their traditional business plan frequently. It provides a vivid snapshot of the company through a small number of elements.

The process of funding a business depends on its needs and the vision and financial situation of its owner.  The first step is to calculate the start-up costs . Identify a list of expenses and put a dollar amount to each of them through research and requesting quotes. The SBA has a start-up costs calculator for small businesses that includes common types of business expenses.  

The next step is to determine how to get the money. Common methods include:

• Self-funding , also known as “ bootstrapping ”
• Finding investors willing to contribute to your venture capital
• Raising money online by crowdfunding
• Securing a business loan from a bank, an online lender, or a credit union
• Winning a business grant from a donor, usually a government, foundation, charity, or corporation

Different methods suit different businesses, and it’s important to consider the obligations associated with any avenue of funding. For example, investors generally want a degree of control for their money, while self-funding puts business owners fully in charge. Of course, investors also mitigate risk; self-funding does not.

Availability is another consideration. Loans are easier to get than grants, which don’t have to be paid back. Additionally, the federal government doesn’t provide grants for the purposes of starting or growing a business, although private organizations may. However, the SBA does guarantee several categories of loans , accessing capital that may not be available through traditional lenders. No matter the funding method(s), it’s essential to detail how the money will be used and lay out a future financial plan for the business, including sales projections and loan repayments . 

Businesses operating in the U.S. are legally subject to regulations at the local, county, state, and federal level involving taxation, business IDs, registrations, and permits.

Choosing a Business Location

Where a business operates will dictate such things as taxes, zoning laws (for brick-and-mortar locations), licenses, and permits. Other considerations when choosing a location might include:

• Human factors : These include target audience and the preferences of business owners and partners regarding convenience, knowledge of the area, and commuting distance.
• Regulations : Government at every level will assert its authority.
• Regionally specific expenses : Examples are average salaries (including required minimum wages), property or rental prices, insurance rates, utilities, and government fees and licensing.
• The tax and financial environment : Tax types include income, sales, corporate, and property, as well as tax credits; available investment incentives and loan programs may also be geographically determined.

Picking a Business Structure

The structure of a business should reflect the desired number of owners, liability characteristics, and tax status. Because these have legal and tax compliance implications , it’s important to understand them fully. If necessary, consult a business counselor, a lawyer, and/or an accountant.

Common business structures include:

• Sole proprietorship : A sole proprietorship is an unincorporated business that has just one owner, who pays personal income tax on its profits.
• Partnership : Partnership options include a limited partnership (LP) and a limited liability partnership (LLP) .
• Limited liability company (LLC) : An LLC protects its owners from personal responsibility for the company’s debts and liabilities.
• Corporation : The different types of corporations include C corp , S corp , B corp , closed corporation , and nonprofit .

Getting a Tax ID Number

A tax ID number is the equivalent of a Social Security number for a business. Whether or not a state and/or federal tax ID number is required will depend on the nature of the business and the location in which it’s registered.

A federal tax ID, also known as an employer identification number (EIN) , is required if a business:

• Operates as a corporation or partnership
• Pays federal taxes
• Has employees
• Files employment, excise, alcohol, tobacco, or firearms tax returns
• Has a Keogh plan
• Withholds taxes on non-wage income to nonresident aliens
• Is involved with certain types of organizations, including trusts, estates, real estate mortgage investment conduits, nonprofits, farmers’ cooperatives, and plan administrators

An EIN can also be useful if you want to open a business bank account, offer an employer-sponsored retirement plan, or apply for federal business licenses and permits. You can get one online from the Internal Revenue Service (IRS) . State websites will do the same for a state tax ID.

Registering a Business

How you register a business will depend on its location, nature, size, and business structure.  For example, a small business may not require any steps beyond registering its business name with local and state governments, and business owners whose business name is their own legal name might not need to register at all.

That said, registration can provide personal liability protection, tax-exempt status, and trademark protection, so it can be beneficial even if it’s not strictly required. Overall registration requirements, costs, and documentation will vary depending on the governing jurisdictions and business structure.  

Most LLCs, corporations, partnerships, and nonprofits are required to register at the state level and will need a registered agent to file on their behalf. Determining which state to register with can depend on factors such as:

• Whether the business has a physical presence in the state
• If the business often conducts in-person client meetings in the state
• If a large portion of business revenue comes from the state
• Whether the business has employees working in the state

If a business operates in more than one state, it may need to file for foreign qualification in other states in which it conducts business. In this case the business would register in the state in which it was formed (this would be considered the domestic state) and file for foreign qualification in any additional states.

Obtaining Permits

Filing for the applicable government licenses and permits will depend on the industry and nature of the business and might include submitting an application to a federal agency, state, county, and/or city. The SBA lists federally regulated business activities alongside the corresponding license-issuing agency, while state, county, and city regulations can be found on the official government websites for each region.

Every business should have a marketing plan that outlines an overall strategy and the day-to-day tactics used to execute it. A successful marketing plan will lay out tactics for how to connect with customers and convince them to buy what the company is selling. 

Marketing plans will vary according to the specifics of the industry, target market, and business, but they should aim to include descriptions of and strategies for the following:

• A target customer : Including market size, demographics, traits, and relevant trends
• Value propositions or business differentiators : An overview of the company’s competitive advantage with regard to employees, certifications, and offerings
• A sales and marketing plan : Including methods, channels, and a customer’s journey through interacting with the business
• Goals : Should cover different aspects of the marketing and sales strategy, such as social media follower growth, public relations opportunities, and sales targets
• An execution plan : Should detail tactics and break down higher-level goals into specific actions
• A budget : Detailing how much different marketing projects and activities will cost

How Much Does It Cost to Start a Business?

Business start-up costs will vary depending on the industry, business activity, and product or service offered. Home-based online businesses will usually cost less than those that require an office setting to meet with customers. The estimated cost can be calculated by first identifying a list of expenses and then researching and requesting quotes for each one. Use the SBA’s start-up costs calculator for common types of expenses associated with starting a small business.

What Should I Do Before Starting a Business?

Entrepreneurs seeking to start their own business should fully research and understand all the legal and funding considerations involved, conduct market research, and create marketing and business plans. They will also need to secure any necessary permits, licenses, funding, and business bank accounts.

What Types of Funding Are Available to Start a Business?

Start-up capital can come in the form of loans, grants, crowdfunding, venture capital, or self-funding. Note that the federal government does not provide grant funding for the purposes of starting a business, although some private sources do.

Do You Need to Write a Business Plan?

Business plans are comprehensive documents that lay out the most important information about a business. They reference its growth, development, and decision-making processes, and financial institutions and potential investors and partners generally request to review them in advance of agreeing to provide funding or to collaborate.

Starting a business is no easy feat, but research and preparation can help smooth the way. Having a firm understanding of your target market, competition, industry, goals, company structure, funding requirements, legal regulations, and marketing strategy, as well as conducting research and consulting experts where necessary, are all things that entrepreneurs can do to set themselves up for success.

U.S. Small Business Administration. “ Market Research and Competitive Analysis .”

U.S. Small Business Administration. “ Write Your Business Plan .”

U.S. Small Business Administration. " Calculate Your Startup Costs ."

U.S. Small Business Administration. “ Fund Your Business .”

U.S. Small Business Administration. “ Grants .”

U.S. Small Business Administration. “ Loans .”

U.S. Small Business Administration. “ Pick Your Business Location .”

U.S. Small Business Administration. “ Choose a Business Structure .”

Internal Revenue Service. “ Do You Need an EIN? ”

U.S. Small Business Administration. “ Get Federal and State Tax ID Numbers .”

U.S. Small Business Administration. “ Register Your Business .”

U.S. Small Business Administration. “ Apply for Licenses and Permits .”

U.S. Small Business Administration. “ Marketing and Sales .”

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Key takeaways

• For a startup that doesn’t have a business credit history, lenders will look at the entrepreneur’s personal credit history to gauge business risk.
• Prepare your personal credit for small-business success by paying off old debts and keeping personal and business expenses separate.
• Build your business credit history by applying for a small business credit card and making on-time payments.
• Once your business has been running for a while, you can generate a business credit report that can allow you to access additional financing sources such as small business loans.

For many entrepreneurs, starting a small business is no small financial feat. According to 2024 research conducted by the retail platform Shopify , small business owners spend an average of $40,000 in their first year. While solopreneurs and freelancers may spend less on their small businesses, you can expect to spend even more if you decide to build out your team. Every employee you hire adds to your total cost, and the average business spends 18.8 percent of its first-year budget on these new hires.

Some companies require an even larger amount of capital to launch. For example, you may want to open a restaurant and need to purchase all the equipment and fixtures. Or maybe you want to buy, renovate and flip property. Whatever the case, if you don’t have the cash on hand or investors willing to provide the money, borrowing may be your best option. If so, you’ll need your credit to be especially attractive to lenders — especially if you want to expand beyond business credit cards and start applying for small business loans.

Here’s how to prepare your credit for your big business adventure:

Pull your personal credit report

If this is your first foray into business borrowing, you will not have a business credit report . That means the information that appears on your consumer credit report will be used to determine your eligibility for small business credit.

Pull all three of your credit reporting files from TransUnion, Equifax and Experian . The best place to get them is from AnnualCreditReport.com , which is a government-authorized site that provides free weekly access to each of your reports. Read your credit reports carefully. If you see negative information that is incorrect, file a dispute with the credit reporting agency. They have 30 days to investigate your claim, so get this done as quickly as possible — especially if you’re thinking about applying for business credit cards soon.

You’ll want to have plenty of positive information on your reports, too. A thin credit file, which means you have few or no listed accounts, does you no favors. A lender won’t know what kind of risk they’ll take with you as a borrower.

Build your personal credit score

If you don’t have the credit history you need, consider opening one or two personal credit cards before you begin applying for business credit.

Starter credit cards , for example, are good choices for people who want to boost their credit scores as quickly. Use them to make a few small purchases every month and then pay off the balances in full. Depending on your situation, you may also want to apply for a credit-building card that can help you recover from previous credit mistakes. As you establish a history of on-time payment and low monthly balances, consider applying for a rewards credit card to continue to improve your credit score while earning rewards on your purchases.

You’ll get a FICO credit score after at least one account is open and active for six months, and a VantageScore can be generated in a month or two after one account is on your file. Both scoring systems measure your creditworthiness based on the data on your credit files, and update your credit scores regularly. The numbers range from 300 to 850, and you’re more likely to qualify for business credit when your scores are in the mid-700s and higher.

As you build your credit, focus on making on-time payments — and paying off your balances in full as often as possible. That’s what business lenders are looking for, according to Everett Sands, CEO of Lendistry.

“The most important thing to a lender is the borrower’s ability to repay the loan,” Sands says.

Apply for a business credit card

If this is your first foray into business borrowing, you’ll probably want to start with a business credit card. The best business credit cards come with enough of a credit limit to allow you to cover business expenses even if you don’t have a lot of cash flow coming in yet. That said, you’ll want to make sure you can pay off any purchases you make on your business credit card. If you carry a balance from month to month, try to keep it as low as possible — and develop a plan for increasing your business’s income so you can pay your balance in full as soon as you can.

Many business credit cards offer rewards designed to help small-business owners save money. The Ink Business Cash® Credit Card , for example, offers:

• 5 percent cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year
• 2 percent cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year
• 1 percent cash back on all other purchases

Plus, new cardholders can earn a welcome bonus worth as much as $750 cash back (earn $350 when you spend $3,000 in the first three months and another $400 when you spend $6,000 total in the first six months after account opening). The Ink Cash also offers a 0 percent introductory APR on purchases for 12 months (then an 18.49 percent to 24.49 percent variable APR thereafter) to help you manage those new-business expenses.

The more you know about how business credit cards work and how to choose a business credit card for your small business, the better prepared you’ll be to start using business credit cards to build a positive credit history. No matter what happens during your first year of small-business ownership, make sure you make your credit card payments on time. Even if you only pay the minimum on your credit accounts, it’s better than nothing — and it may help keep you from building the kind of negative credit history that could prevent you from getting business credit in the future.

Pull your business credit report

You won’t have a business credit report until you’ve established your small business to the point at which  creditors and vendors can begin supplying information to the business credit reporting agencies.

That said, you can often establish a positive business credit history simply by opening a business credit card and making your payments in full every month — even if you aren’t yet working closely with vendors and suppliers. Many startups are run out of home offices, after all, and small-business owners who use their business credit cards to autopay subscription purchases like Adobe Creative Cloud or Microsoft 365 can build the credit history they need to generate a business credit report.

The most common business credit reports are developed by Dun & Bradstreet , Experian Business and Equifax Business. Your business credit reports will contain the information necessary for a lender to make a wise decision about the health of your business and your credit history. For example, it will show your record of paying suppliers and repaying lenders, your current bank balances and activity, and — if applicable — the company’s assets, inventory and sales.

Your business credit report also shows any liens, judgments and bankruptcies associated with your business, and those kinds of derogatory marks can remain on your business credit report for years to come.

As with your consumer credit reports, the most important factor in your business credit report will be your payment history. If you’ve borrowed money and made on-time payments according to the terms of the contract, issuers can see you’re a responsible person to do business with. The longer you’ve successfully used business credit products this way, the greater confidence a lender will have in you as a business owner.

Apply for loans to fund your business

Once you’ve established a positive business credit history and have the business credit report to prove it, you can start applying for small business loans . You can get business loans from the Small Business Administration, as well as conventional banks, credit unions, online lenders and microlenders. With a business loan, you borrow a fixed amount and send steady monthly payments until the loan is paid off. The biggest loans with the lowest interest rates will be available to you if you have been in business for a couple of years and have good credit.

You may also want to consider a business line of credit (LOC). These flexible loans work like a credit card, and allow you to borrow against a preset credit limit. The lender will review your credit score, annual revenue and the length of time you’ve been in business to determine if you qualify.

A business that you’ve had for a long time will help you qualify for a large line of credit or a substantial business loan — but even if you’re just getting started, a strong revenue base plus collateral can put you in a positive position. What could get in the way? Debt.

Most lenders will assess your debt-to-income ratio (DTI) when deciding whether you qualify for a loan. Your DTI compares the total of your gross monthly earnings to your monthly creditor payments. So if 40 percent of your gross monthly profits is already promised to creditors, your DTI is 40 percent. This ratio helps lenders know if you can afford to take on the payment. The lower your DTI, the better — so before applying, you may want to pay off as much of your current round of financial obligations as you can.

Factors such as past revenue that back your ability to repay, marketing and sales data that support your future projections and contracts in execution may also help qualify you for a loan, according to Sands.

“The stronger the applicant’s credit profile and financial information,” he explains, “the more likely they are to receive the loan.”

Once you have the credit products you need, use them to your advantage. Leveraging a bank’s deep assets to fund your startup costs is a great strategy, but that’s just the beginning. Since all of this borrowing and repaying activity will appear on your credit reports, only take out the amount you can repay — and make sure you make on-time payments every month. That way, you’ll be prepared to take on bigger and better credit cards and loans once your business is ready for them.

The bottom line

In the end, remember that banks and other credit providers want to lend money to qualified borrowers. It’s part of their business model, after all. So take action now to become the most appealing borrower you can be. If your personal credit isn’t where it should be to apply for a business credit card, start there.

Once you’ve established a positive business credit history, you can begin applying for small business loans. As your business — and your business’s creditworthiness — continue to grow, higher limits and loans might be within reach.

Article sources

We use primary sources to support our work. Bankrate’s authors, reporters and editors are subject-matter experts who thoroughly fact-check editorial content to ensure the information you’re reading is accurate, timely and relevant.

How much does it cost to start a business (research) . Shopify. Accessed on Nov. 3, 2023

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