The ultimate guide to loans for startup founders

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At the start of this year, I faced a reality many founders dread: I could see our runway getting shorter. While I was confident we'd sign new customers and hit profitability, I wasn't comfortable betting the company on that assumption.

My first instinct was to raise another round of venture capital. But after a couple of weeks of trying, it was clear that fundraising would take too long and pull too much focus from the business. Grants were another option, but they wouldn't quickly provide enough capital.

I started seriously considering loans for the first time in three years of running a company. Since then, we've secured funding from multiple sources:

• $100K loan from Invest Atlanta

• $25K from Capchase

• An approval for invoice factoring

I learned a lot about loans throughout this process, so here’s a guide to loans for any founder considering going that route for funding.

The Stigma Against Loans

There's definitely a stigma around loans in the startup world, and I get it. They're scary – especially since they require personal guarantees. This is particularly true in the Black community, where there's a complex history with debt, and many founders might already be dealing with student loans.

In a world where VC funding dominates the headlines, loans can seem less attractive. With VC money, if your company fails, you don't personally owe investors anything (in fact, VCs invest knowing that 9/10 of their investments will go to 0). You're on the hook with loans regardless of what happens to the company.

However, loans can be a powerful tool when used correctly. They let you keep full ownership of your company, move quickly when you need capital, and often come with unexpected benefits (more on later).

Who Should Consider Loans?

Before you start applying for loans, here's what needs to be true about your company:

1. You have good traction (specifically, paying customers) for at least $250K in revenue.

2. You don't need a lot of cash. Loans are outstanding if you need somewhere between $200K-$1M.

3. You've been in business for a few years and have a solid business history to show to a lender.

Types of Startup Loans

Every type of loan is designed for different situations. Your job is to figure out which one fits your specific needs. Here are the main types I've researched and some that we've used:

Term Loans

Think of these as your traditional bank loans. You get a chunk of money upfront and pay it back over time. These are great if you need significant capital and want predictable monthly payments. The Invest Atlanta loan is a term loan with a. 5-year repayment period and a super low interest rate.

What's good about them:

• You know precisely what you're paying each month

• Interest rates are usually lower than other options

• You can use the money however you need to

The downside:

• Not easy to get – banks want to see good credit and collateral

• You need a solid business history

• You're committing to long-term debt, which can be scary for early-stage companies

Where to find them:

Start with traditional banks and credit unions. Also, consider looking into your city or state’s technology initiatives. More areas are trying to build startup hubs by offering loans for early-stage companies.

SBA Loans

This is a friendly reminder that your tech startup is a small business. SBA loans are government-backed loans, basically the gold standard of small business lending. The government backs these loans, so banks are more willing to work with you. I’ve never personally gotten an SBA loan, but I looked into it before we confirmed our other loans.

What's good about them:

• Lower down payments

• Better interest rates

• Longer time to pay back

• You get free business advice from the SBA

The downside:

• The application process is a pain

• Lots of paperwork

• Can take weeks or months to get approved

• Strict eligibility requirements

Where to find them:

Use the SBA's Lender Match tool. It's like a dating app but for finding SBA-approved lenders in your area.

Revenue-Based Financing

We just wrapped up paying off our $25K revenue-based financing (RBF) loan through Capchase. They give you money upfront, and you pay them back by giving them a cut of your monthly revenue. The payments flex with your revenue—when we had a great month, we paid more; when things were slower, we paid less. It's pretty simple.

What's good about them:

• They’re non-dilutive

• Payment schedules can be flexible and negotiated

• They offer quick access to capital → The Capchase process took 1 week

• No personal guarantees or collateral is required

The downside:

• Only available to companies with predictable recurring revenue

• Can be more expensive than traditional loans in terms of total cost

• Requires sharing of detailed financial and customer data

• May impact cash flow, especially during slower revenue periods

Where to find them:

Look for fintech companies specializing in this—a few to check out at Capchase, Pipe.com, and FounderPath.

Invoice Factoring

This one's interesting. Invoice factoring allows you to get a cash advance on an unpaid invoice. You pay a fee for ‘factoring’ the invoice (usually 3-5%), and you get the money in your account immediately instead of having to wait 30-120 days for the customer to pay. We got approved for this but haven’t used it (yet).

What's good about them:

• You get money quickly

• It's not technically debt

• Your credit matters less than your customers' credit

The downside:

• Can get expensive

• It only works for businesses that invoice customers

• Some customers might not like dealing with a factoring company

Where to find them:

There are tons of online factoring companies. Just be sure to read the fine print on fees and terms.

Remember: no single type of loan is perfect for every situation. At Chezie, we've used a mix of these options at different times based on our needs. The key is understanding your options and choosing what makes sense for your specific situation.

How to get started with loans

Getting a loan isn't as simple as filling out an application. Here's everything you'll need to have ready, based on my experience with Invest Atlanta and other lenders:

• Business Plan

• Financial Statements

• Personal Financial Information

• Legal Documents

• Collateral Information

• Use of Funds Statement

• Resume

• Bank Statements

• Credit Report

• Business Debt Schedule

The process can be more cumbersome than raising VC funding. Expect lots of back-and-forth, phone calls, and yes – even faxing documents. Many lenders still operate in pretty traditional ways.

Making your company attractive to lenders

Want to improve your chances of approval? Focus on these three things:

1. Demonstrate Traction: Remember, loan officers invest in real businesses, not potential. Show them users, revenue, and growth.

2. Be Specific About Fund Usage: If you're asking for $50K, be ready to say exactly how you'll use it. For example: "This will fund two part-time developers for six months to ship three specific features by September instead of January, which will help us close six pending customer deals."

3. Show Community Impact: Community impact matters, especially for local lenders. Be ready to discuss how you'll prioritize local hiring, support local businesses, or contribute to the community.

One part of taking out a loan I didn’t consider was the relationships I’ve formed. While VCs might help with go-to-market and hiring, loan officers often have deep community connections. They can introduce you to local bookkeepers, help you secure office space, and connect you with local resources that VCs typically can't.

Remember: every funding source has its place. Loans might not make sense for every startup, but they can be a powerful tool when used strategically.

If you have questions about startup loans or want to share your own experience, reply to this email! Would love to hear from you 🤝

Catch you next week,

Toby