Are you launching a small business, but don’t know where to start when it comes to financing? All new entrepreneurs have to navigate the stress of looking for a startup business loan while considering all avenues for financing.
It can be overwhelming when you don’t know where to look for professional financing. As if that’s not enough, new startups often lack the business history necessary to prove reliable and credible in the eyes of multiple lenders.
We put together the ultimate guide to small business loans, personal loans, business credit cards and more so you can enjoy peace of mind about all of your funding options. Whether you want to decide between different funding opportunities or secure the best loan for your business, this article is for you!
Our experts have scoured the internet for the most relevant and reliable sources, so you have trusted information you can implement into your business strategy immediately.
As an entrepreneur, your time is money. Keep reading this article to save time and find the best loan options for growing or starting your business!
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.
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This loan type is usually given to borrowers that need funds to start a business from the ground up. 7(a) loans can be extremely difficult to qualify for and overall processing can take months before funds are allocated.
This loan is usually awarded to small business owners that have assets like real estate or equipment that can be used as collateral if they can’t pay back their loan. This group of SBA loans promises to “guarantees portions of the total amount, cap interest rates, and limit fees.”
504 loans are usually long-term, fixed-rate loans that are granted to serve a specific business purpose. Most people that apply for SBA 504 loans are looking to purchase or repair assets like machinery, equipment, real estate, or other business necessities.
We briefly covered microloans earlier, clarifying that they are some of the easiest SBA loans to obtain. This is the smallest loan program in the SBA which strives to help businesses get started or expand with financial assistance.
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.
Consider Fundbox if you want a line of credit with a maximum loan amount of $150,000. Borrowers can expect repayment to be between 12 and 24 weeks, with an estimated annual percentage rate (APR) of 10.1% to 79.8%.
Your APR will be determined based on your credit score history and financial reliability as a business. Borrowers will need to meet the following qualifications: be open for at least six months, have a minimum personal credit score of 600, and bring in annual revenue of $100,000.
If you want a higher line of credit, Bluevine offers a maximum loan amount of $250,000. Repayment will be between 6 and 12 months, with an estimated APR of 15% to 78%. Borrowers will need to meet the following qualifications: be open for at least six months, have a personal credit score of 650, and bring in annual revenue of $120,000.
Triton Capital offers equipment financing with a maximum loan amount of $250,000. Borrowers will need to meet repayment terms between 12 to 60 months. You can expect an estimated APR between 5.99% to 25%.
The requirements for Triton Capital are a bit more rigorous, including the following guidelines: be in business for at least two years, have a personal credit score of 600, and bring in annual revenue of $250,000. Depending on your circumstances, you may be eligible for funding as a startup but you can expect much higher costs.
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.
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.
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.
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.
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.
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.
Based on our research, these are the top 6 best startup business loan options with the highest ratings, based on loan amounts, time in business, and minimum credit score requirements. Finding the startup loans that are right for you will depend on the loan amount you desire, and your personal or business credit scores.
Make sure to only commit to a startup loan that makes sense for your business plan, future goals, and ability to make monthly payments. A loan is a great opportunity to leverage the support from business lenders, a bank, or credit union, to grow your startup.
However, there is no personal guarantee that your business will generate enough revenue to stay afloat, so consider all loan options closely and be mindful of your debt responsibility.
If you want to improve your chances of qualifying for small business loans, you’ll need to focus on your personal and business credit history. Borrowers that lack financial records will struggle more than those that have a long-spanning positive credit record.
You’ll want to gather the following information before applying for loans, as it will increase your chances of building trust and credibility in the eyes of lenders.
Can you get an SBA loan for a startup?
Yes, you can get an SBA loan for a startup, however, you will have a higher likelihood of approval if you apply for microloans.
What size loan can I get to start a business?
The size loan you receive will depend on your personal and business credit history. Established businesses usually qualify for higher loan amounts due to their financial history, reputation, assets, and annual revenue. Small businesses will need to position themselves correctly to increase their chances of qualifying for high-ticket loans. Consider fleshing out a solid business plan and strategy for financial budgeting, while building up your personal credit.
Can I get a loan if I just started my own business?
Yes, you can get a loan if you just started your own business. However, it will depend on your credit score, financial history, and overall business revenue. If you don’t have any business history, you will have to build up your reputation in other ways, likely through your personal creditworthiness.
How large of a loan do I need to start a business?
The size of the loan you need to start a business will depend on your unique industry and offerings. For example, a clothing eCommerce store will have different financial needs compared to a brick-and-mortar restaurant. Do market research to determine the financial requirements of your unique business model.
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