The Best Startup Business Loans and Financing Options for Small Businesses

An SBA loan, or Small Business Administration loan, is a great option for startup businesses that want to launch their company or simply expand overall funding. The U.S. SBA offers loans of up to $50,000 to qualifying participants. However, the average SBA loan in 2021 was $16,557, so most borrowers will not receive a maximum loan amount.

Funds are administered from nonprofit community lenders, and most SBA microloans are relatively easy for small business owners to qualify for as long as they are flexible with the overall loan amount.

The benefits of working with the SBA are reduced lender risk and easier access to capital. The downfalls are you might not receive adequate funding to execute business projects and growth strategies.

If you want to apply for an SBA loan, go to their business website to find a loan that meets your professional needs. Enter your local zipcode to find a prospective lender in your region. Once you are connected with a local lender, you can apply for a startup business loan. Upon approval, your lender will administer the funds and assist with loan management.

Microloans, sometimes called short-term loans, are the small sum of money that lenders give to new businesses to cover startup costs, usually at a low-interest rate. Entrepreneurs and business owners can source microloans from other lenders aside from the SBA alone. If you work with microlenders or non-profit lenders, you may have a higher probability of securing funding for your company, especially if you are currently lacking financial security.

Certain mission-based organizations will provide flexible terms for startup business loans, compared to private lenders. If you need to build up your business credit score and gain traction to qualify for better financing in the future, microloans are a great option.

If you are a startup that’s been in operation for less than a year but over six months, you can find online lenders that are willing to offer online business loans for your company. Depending on how established your business is, you may receive less funding than other competitors that are bringing in a consistent profit margin.

Nevertheless, online lenders will offer a higher business loan amount compared to microloans, usually in the form of a line of credit or equipment financing.

If you are a brand-new startup with minimal financial history, you might struggle to qualify for business loans and receive the funding you need to grow and expand. Personal business loans are a great solution if you find yourself in this situation, as they are based on your personal credit score and credit history.

It’s only recommended to opt for personal business loans if you have a secure income and credit history, otherwise, you will be faced with an extremely high APR of up to 36% or more. New business owners could benefit from using personal loans as their startup business loans if they know that you’re in good financial standing outside of their business.

#5. Small Business Grants

Small business grants might be a reliable funding opportunity if you need an initial investment to get your business established, especially if you don’t want to borrow money.

Grants are usually administered by government entities or corporate organizations, however, it’s important to note that grants are highly competitive because they aren’t loans. The upside is that if you do secure a grant, you have peace of mind that you financially support without the need for debt repayment. You don’t borrow money, instead, you are rewarded with money to cover startup financing.

There are a variety of grant types for different niches. If you want to increase your chances of being chosen, apply for business grants that are for a unique or niche market of business owners. For example, there are grants for veterans, women, minorities, immigrants and more.

Look for lower competition grants that give you a higher probability of being chosen, otherwise, you could spend a sufficient amount of time applying without receiving any money in return.

#6. Asset-Based Financing

If you are a business owner looking for business financing, asset-based financing might be a good option for you, as long as you own a credible amount of high-profit machinery, equipment, or real estate. In this case, secured financing will offer you more flexible terms of service since there is a decreased risk for the lender.

Any financial that ensures a decreased lender risk will be easier for you to secure compared to traditional business loans. In certain circumstances, asset-based financing can be a safer route to receive startup funds and boost your cash flow for business expenses.

One example of asset-based financing is invoice factoring. In this case, you sell outstanding invoices to a third party in exchange for a monetary reward. This will usually be around 80-90% of your total invoice amount, which can secure prosperous working capital that doesn’t ride on your business credit history or personal credit history.

If you have bad credit, asset-based financing may be a reliable route to explore compared to a traditional loan or small business loan.

#7. Crowdfunding

Crowdfunding is the process of funding a business by fundraising money from a large group of people online. There are crowdfunding platforms available today, such as Kickstarter or Indiegogo, that allow you to raise money that will cover initial operating expenses for your brick-and-mortar or eCommerce business.

If you don’t have enough income to cover expenses, but don’t want to go into debt, crowdfunding is a reputable financing option. Your startup won’t be charged interest or lender fees that come with a traditional business loan.

#8. Friends and Family

If you are struggling to qualify for a startup business loan, consider taking a loan out with friends and family. Depending on your circumstances, this can be a lower-stress option however there is a higher risk involved since you have personal relationships on the line.

Make sure to be transparent about your financial history and credit score, as this could influence the decision of people in your life. If you don’t want to take out a loan with friends or family, you can always ask for help on your crowdfunding campaign or gather donations.

#9. Credit Cards

Business credit cards can be a quick way to gain access to necessary funds without waiting for approval on your startup business loan or needing to get collateral involved. If you want to apply for a business credit card, create a game plan of how the funds will be allocated to make sure you have enough available credit.

Most business owners will use their business credit card to pay for everyday expenses, tax ride off investments, or supplies needed to get a startup business on its feet. Some cards will offer a 0% APR upon starting that lasts anywhere from six months to two years.

Depending on your personal credit scores, you might have a high available credit upon applying. Most startups will combine funds from a business startup loan and a credit card to cover a plethora of business expenses.

Keep in mind that you will have a lower available credit if you have poor personal credit, so consider working on your credit as you prepare to apply for cards.