The Best Small Business Startup Loans for Entrepreneurs

As a new business, you’ve probably found that startup business loans and startup funding is hard. Lenders are hesitant to offer term loans, business lines of credit, equipment financing or invoice factoring to startups without a track record of revenue. But don’t worry — there are banks, online lenders and credit unions that might offer funding to new businesses. Below, we’ll cover some of the best startup business loans and funding options available, and what each one has to offer.

Best Start-up Business Loans

Is a startup loan right for your business?

Before you apply for new business loans or startup funding you should decide whether a startup business loan is actually a good fit. Lenders will probably want to see at least three to six months of time in business and see that your company is doing well before offering funding.

One benefit of taking out a loan as a new business is that, if you pay it back on time, you could help boost your credit score and your company’s early-stage growth.

But the drawbacks to taking a startup business loan before you’re ready can be significant, so it’s important to weigh your options. You could damage your credit score or accrue debt that might be difficult to climb out of. Consider as alternatives other options like grants, investors, crowdfunding or loans from family and friends.

Term loans

One of the most common forms of business funding is a term loan, which is a lump sum paid back over a set period of time that can be used for most business expenses.

Short-term loans typically are offered for between $5,000 and $500,000 and repayment occurs over three to 18 months. If you’re able to handle a quick repayment these can be great because you save money by paying interest for less time. A long-term loan sometimes comes with a higher maximum amount and lower interest rates. They’re also usually paid back over three to 10 years, often giving businesses manageable monthly payments they can use to boost their credit scores.

SBA loans

You also have the option of Small Business Administration or SBA loans, some of the best loans on the market. They’re a popular funding option for borrowers due to their low interest rates, and lenders take on less risk because the loans are guaranteed by the SBA.

The 7(a) loan program is the SBA’s most common loan program, but not it’s only one. The SBA guarantees microloans that can be used as startup business loans. The loans offer up to $50,000 for certain small businesses that are in underserved markets or are nonprofit child care centers. These loans were designed to help new small business owners who identify as "women, low-income, veteran, and minority entrepreneurs". The average interest rate on these loans is 6.5% and the average amount awarded in 2019 was $14,434.

Business lines of credit

A business line of credit offers your business revolving credit to use and repay when needed. Essentially, you can borrow until you hit your credit limit, then those funds become available to you when you repay what you borrowed. It can be used for a variety of financing needs and usually max out somewhere between $100,000 and $250,000, depending on what kind of business you own.

This type of funding can be a bit more difficult to obtain than startup funding because it sometimes requires collateral. Also, most lenders will require a minimum of six months in business and annual revenue minimums.

Fundbox

A Fundbox line of credit provides funding of up to $150,000. These lines of credit are repaid in 12 or 24 weeks through equal installments that are automatically debited from your business bank account. To be eligible, you should have at least six months in business, a credit score of 600 or more and a minimum of $100,000 in annual revenue.

Equipment financing

If you’re looking for funding for equipment, consider equipment financing. It provides you with funds to purchase equipment for your business. The equipment acts as the collateral to secure the loan, which means you could lose the equipment if you default on your payments.

These loans typically have a three- to seven-year repayment period. They’re a good option for new businesses that require money at the start of their business to pay for necessary equipment. One thing to note is that equipment loans typically require a minimum credit score around 680.

Taycor Financial

Taycor Financial equipment loans offer financing of $5,000 and $2 million with repayment terms of 12 months or seven years. The interest rate can vary greatly depending on your qualifications and the amount of the loan and repayment terms.

Invoice factoring

You could also opt for invoice factoring as startup business financing. Through this form of funding, you sell your unpaid invoices to a lender ("factoring company") that keeps a percentage of the invoices once they’re paid. Typically, you could receive anywhere from 70% to 90% of the full value of the invoices you factor.

BlueVine

BlueVine might be a good option for invoice factoring. The lender offers up to $5,000,000 in factoring with interest rates as low as 0.25% per week. BlueVine processes your application within 24 hours and will pay out 85% to 90% of the invoice totals.

Their requirements are fairly lenient, requiring a 530 credit score, $10,000 in monthly revenue and a minimum of 3 months in business. Also, you have to own a business-to-business company.

Business credit cards

If none of the startup business financing so far is appealing, you could consider using a business credit card. They can be a useful source of funding because they typically don’t have the same requirements that business loans or lines of credit have, and they often come with rewards like cash back.

However, business credit cards tend to have higher APRs than business loans, so you should pay off your credit card charges at the end of each month for the sake of your debt and credit score.

[data-lightrail id="2122"]{name}[/data-lightrail], a credit card for startups

Brex, a credit card issuer focused on startups, offers credit limits that are higher than traditional business credit cards with the [data-lightrail id="2122"]{name}[/data-lightrail]. Brex will report your on-time payments to Experian as well as Dun & Bradstreet to help you build credit, too. The [data-lightrail id="2122"]{name}[/data-lightrail] is a no-interest card without an APR because anything a business charges must be paid back at the end of the 30-day statement period.

Personal Loans

If you’re struggling to secure startup business financing, you can try securing a personal loan for your business. Getting approved for a personal loan usually depends on your personal credit and your income. Personal loans usually have lower maximums though, and they aren’t tax-deductible like business loans are.

There are some risks associated with personal loans, though. First, you are personally liable for the debt instead of your business even though you’re using the funds for business purposes. Secondly, some lenders prohibit the use of personal loans for business purposes, so be sure to read the fine print before applying.

Rocket Loans

Personal loans from Rocket Loans are a good option for borrowers looking for a lump sum. The online lender offers loans from $2,000 to $45,000 with repayment terms of 36 or 60 months. Rocket Loans charges an origination fee of anywhere from 1% to 6%, and an estimated APR of 7.16% to 29.99%.

The minimum credit score for borrowers is 640, and borrowers with poor credit will be offered loans with higher interest rates from Rocket Loans. Borrowers can have their money the same day they apply.

Additional startup funding options

If none of the traditional funding options are a good fit for your business, you still have a few other avenues to get money.

Business Grants

The world of business grants can be competitive but if you manage to secure one it can be incredibly helpful for your new business. Grants are great for new businesses because they don’t need to be repaid, but they usually have strict requirements for the type of business you run and grants tend to be less numerous than traditional funding options.

Crowdfunding

Thanks to the growth of online fundraising platforms, it’s become easier to crowdfund your startup venture. You can now use websites like Kickstarter or GoFundMe to help raise money from the public. You might need to offer donors something in return, like a promotional item or a discount when your business launches. These platforms sometimes take a fee for the money you raise, too.

Friends and family

Your friends and family can be another alternative source or startup funding for your new business. But this type of funding comes with strings attached usually, and could potentially complicate your relationships.

According to a survey from LendingTree, more than a third of respondents reported negative consequences of borrowing money from friends or family. If you do go this route be sure to have a written agreement with the other parties involved so everyone is clear on the conditions and terms of the loan or investment.

How to get a small business startup loan

The first thing to do to get a business startup loan is to evaluate your financial situation. Consider how long you’ve been in business, your monthly or annual revenue, and your credit score.

Next, you should decide what type of funding you want:

You should also decide how much money you’ll need and how you plan to use those funds because you’ll likely be asked this in your funding application. Before you fill out an application, make sure you meet the lender’s minimum requirements. This is also a good time to check whether the lender can offer you funding in the necessary time frame.

Once you have your eye on a lender and know they offer the type and amount of funding you want, gather all of your documents for filling out your application. These documents could include a detailed business plan, financial statements, tax returns and more. Requirements might vary by lender but most will want comprehensive background documents about your business.

The last step is to apply. If you’re approved, consider the following factors before accepting the money:

FAQs

Here are some frequently asked questions about startup business loans and startup funding.

How can I get a loan to start a business if I have bad credit?

The best thing you can do is improve your creditworthiness. You can do this by getting approved for a credit card and making your payments on time. Even better, you can make payments early to utilize less revolving credit until your credit improves. Alternative and online lenders also have more flexible requirements for business owners with bad credit.

Do banks lend to startups?

Banks are most likely to offer startup funding to businesses that can show they have a high chance of repaying the funds they’re loaned. Offering up collateral and showing strong monthly finances can also increase your chances of getting approved for a loan from a startup.

How can I get money to start a business?

You have multiple avenues to explore to try and get startup business loans. You can opt for traditional lending options or search for grants, try crowdfunding, or ask family and friends to take a chance on your new venture and either lend you the money or invest in your business.