How Much Can You Borrow With A Startup Loan?

While it’s possible to get a startup business loan, startups typically have a harder time getting approved, especially for large loan amounts. The reason is that startups don’t have a track record of financial success that the lender can use to evaluate their creditworthiness. 

According to the 2024 Report on Startup Firms by the Federal Reserve, just 29 percent of startups with no employees were fully approved for a business loan. Another 25 percent were partially approved for the loan amount sought.

In general, expect to show ample proof that your startup can make the loan repayments. In addition, your startup may be approved for a low maximum business loan amount, such as $500,000 or less. The exact loan amount you can get will depend on various factors, like your personal credit, business revenue and collateral given to back the loan.

How much can you borrow for your startup business?

How much you can get for your startup business loan will depend largely on your business’s current financial state and its ability to make repayments. 

In general, the average loan amount for any business is $458,497, according to the latest data from the SBA. Brand new startups get an average of $518,809 in SBA funding, while businesses under two years old average $391,510.

However, according to the 2024 Report on Startup Firms, 54 percent of startups with no employees applied for $25,000 or less. Startups with employees were more likely to apply for more funding: 28 percent applied for $25,000 or less, while 24 percent applied for $50,001 to $100,000.

Keep in mind that not all businesses were fully approved for funding in the report on startup firms. 

Factors influencing startup loan amounts?

When lenders evaluate a company for a small business loan, they set amounts based on factors like the company’s time in business, revenue and credit history.

Because startups aren’t usually strong in these areas, lenders may consider additional factors when approving your maximum business loan amount, including:

• Age of the startup. Startups with a few years in the market with strong profitability will be more likely to get approved for a startup loan.
• Revenue. Lenders need to see a history of steady revenue, enough to easily cover the loan repayments. If you have low revenue or uneven cash flow, you may not be approved for the full loan amount you’re seeking.
• Industry: Lenders may consider a startup’s industry when making a loan decision, offering more money to companies in profitable and stable industries.
• Personal credit: As a startup loan applicant, you’ll need a strong personal credit score and credit history to receive funding. If your credit isn’t great, you could find a lender who will work with your business, but the cost of borrowing may be higher.
• Industry experience: Having experience in your industry gives lenders more confidence that you can repay your loan. In turn, they may offer you a larger amount of money.
• Collateral: If you can offset the lender’s risk by securing your loan with collateral or another asset, the lender may be more likely to approve you for a larger loan.

Calculating how much startup funding you can get

Since every lender evaluates startups differently, you can’t accurately calculate how much funding the lender will offer you. Instead, you will have to prequalify or apply with the lender to see how much funding you can get.

However, lenders use several indicators to show whether you have the ability to manage the loan. First, lenders will use your debt-to-income ratio to get an idea of your total debts as a percentage of your revenue. Lenders often like to see that your debts equal 36 percent of your revenue or less.

Next, lenders might use the debt service coverage ratio, which shows how much revenue you have to cover your debts. Lenders like to see a DSCR of 1.25 or higher, meaning you bring in 1.25 times more revenue than your debt repayments. 

These ratios give you a starting point to see how much debt your business can handle. You can also use a business loan calculator to estimate loan repayments and see what repayment amount would fit into your budget.

Why do startup loans tend to be smaller than other business loans?

Startups are new companies, usually with ambitious growth plans and products or services that tap into a unique market. That’s not how lenders define them, though. Instead, in most lenders’ eyes, you’re a startup if you’ve been in business for two years or less.

A startup carries more risk for lenders because it often hasn’t delivered strong business results yet, hasn’t built much business credit and doesn’t have many assets. Plus, if a startup fails, there’s a risk that the loan might not get repaid.

Because of this, lenders may hesitate to fund startups. If they do offer a business loan, maximum loan amounts will likely be less than an established business would receive.  According to the 2024 Report on Startup Firms, 29 percent of startups with no employees were fully approved for a loan, and 43 percent of employer startups were fully approved. 

Startup business loan amounts by lender

Not all lenders provide startup business loans, and getting a loan from a traditional bank or credit union is especially difficult. You’ll want to compare lenders that cater to startup businesses and consider the loan amounts you could get from each. 

Keep in mind that you’ll need to apply directly with the lender to see what loan amount it will offer you. Examples of loan amounts offered by each lender include:

Alternatives to startup business loans

If you can’t get the funding you need from a conventional startup business loan, you still have options, including:

• Business grants. Grants provide your business with funding that you don’t have to repay, making them ideal for startups. However, they tend to be competitive since many businesses may apply for the grant. You can narrow the competition if you apply for a grant in your industry or are part of a minority group.
• Business credit cards. Business credit cards provide an easy way to get financing for small, short-term expenses. They typically don’t ask how long you’ve been in business, though you will need to provide a strong personal credit score. Business credit cards typically let you earn rewards with every purchase.
• Crowdfunding. Crowdfunding allows you to raise funding for your business through individual investors. You can either accept donations or offer rewards-based crowdfunding by giving investors equity in your business or some other reward. Some platforms like Kiva let you raise money for a business loan, so you will need to pay back the investors, possibly with interest.
• Bootstrapping. According to the 2024 Report on Startup Firms, 33 percent of startups with no employees and 28 percent of employer startups used the owner’s personal funds to finance the business in the prior year. This is called bootstrapping, and it gives you a way to get funding without giving away equity in your business.

Bottom line

When you’re trying to grow a young business, a startup business loan can provide much needed liquid capital. These can be hard to come by, though, particularly in large amounts. Usually, for a startup business loan, maximum amount averages hover around $500,000 — and actual loan amounts might only be for a sliver of that.

That said, how much you can get for a startup business loan depends on your company, your personal credit history and your business’s ability to repay the loan . Exploring your options with a variety of lenders can help you find the capital you need.

Frequently asked questions

• What is the average amount of a small business startup loan?
  

  Because the amount your business is approved for will vary based on your personal finances, industry and other factors, there is no set average. Recently, business loans for newer companies have seen maximums around $500,000.

• Do banks loan money to business startups?
  

  It can be difficult for a startup to meet a bank’s requirements. Many banks require a minimum revenue in the $150,000 range or higher and a minimum time in business of two years or more.

  You could potentially find a local bank or credit union with lenient requirements, such as six months in business and $100,000 in annual revenue. That’s particularly true if your personal credit is strong and you’re willing to put up collateral to back the loan.

• How long does it take to get a startup business loan?
  

  It depends on the type of loan and lender. Online lenders may process applications within a day or two. Banks and credit unions — and the applications they underwrite for SBA loans — may take weeks to months to process and fund.