Small business owners have a lot of options when it comes to financing their businesses. In this article, we’ll discuss ten of the best small business loans for startups. Each one has its own benefits and drawbacks, so be sure to do your research before deciding which is right for you. Let’s get started!
What Are Small Business Startup Loans?
Small business startup loans are a form of business financing for new businesses to help cover initial expenses such as equipment, inventory, and operations.
These loans typically have lower interest rates and longer repayment terms compared to traditional loans. By obtaining one of these loans, a new business owner can focus on growing their business without the added financial stress.
Can a Startup Loan Help a New Small Business Grow?
A startup loan from a bank or credit union can definitely help a new small business grow. Here are five benefits of taking out a startup loan:
- Access to necessary funds. A startup loan is beneficial for starting or expanding the business. You can use the funds for equipment financing, inventory, or working capital.
- Bridge the gap in funding. A startup loan can help fill the gap between what you have and what you need to get your business off the ground.
- Build business credit. A startup loan can help you establish business credit, which can be helpful in the future if you need to obtain additional financing.
- Get attractive rates and repayment terms. Many lenders offer lower interest rates and longer repayment terms for startup loans. This can help ease the financial burden of starting a new business.
- Improve your chances of success. A startup loan can improve your chances of success by giving you the necessary funds to get your business up and running.
Top Startup Business Loans for New Businesses
Taking out personal loans, maxing out business credit cards, or even borrowing money from family and friends may not be the best option for obtaining business financing. Instead, check out these top ten startup loan options:
1. SBA Loans
An SBA loan is a government-backed loan offered by banks and other lenders. SBA loans are attractive because they have low-interest rates and long repayment terms. However, they can be difficult to qualify for and the application process can be lengthy.
OnDeck offers loans amounting from $5,000 to $250,000 to businesses that have been in operation for at least one year and have a credit score of 625 or higher. Loans can be funded as soon as the next day and interest rates are 35%.
Kabbage is a loan option for businesses that have been in business for at least one year and have a credit score of 640 or higher. The maximum loan amount is $250,000.
The BlueVine loan option offers business owners quick access to loan amounts between $6,000 and $250,000. Your company has to be in business for at least six months and requires a minimum credit score of 600 to be funded. Borrowers can expect an interest rate of 4.8%.
Lendio is a lending platform that offers loans between $500 and $5 million to businesses that have been in operation for at least six months and have a minimum credit score of 560. Loans can be funded in as little as two to four weeks.
Biz2Credit is a lender that offers loans from $25,000 to $2 million to businesses that have been in operation for at least six months and have a credit score of at least 575. The company can fund loans as quickly as 72 hours.
Kiva is a nonprofit organization that allows people to lend money to entrepreneurs in developing countries. Loans through Kiva typically have 0% interest and are funded in as little as one month. This makes it a great option for small businesses that need quick access to capital.
Fundbox is a loan option for businesses that have been in operation for at least six months and have a credit score of 600 or higher. Loans range from $1,000 to $150,000 and can be funded as soon as the next day. The draw rate is 4.66%.
The Ascendus loan option offers borrowers up to $10,000 with a minimum credit score of 575 and an interest rate of 4%. This loan is a great option for borrowers who are looking for a quick and easy way to get the money they need.
10. Finance Factory
The Finance Factory offers loan amounts ranging from $5,000 to $350,000, with no minimum time in business required and a minimum credit score of 600. The interest rate is up to 15%, which is higher than some of the other options listed here.
How Do You Qualify for a Startup Business Loan?
In order to qualify for a startup business loan, the criteria for traditional business loans still apply.
Here are the basic criteria needed to qualify for a startup business loan:
- Strong credit history. You’ll need to have a strong personal and business credit history in order to qualify for a startup loan.
- Detailed and realistic business plan. A well-written business plan is essential for any new business. Your business plan should include detailed financial projections and realistic goals.
- Proof of equity. You’ll need to show that you have a significant amount of personal equity invested in your business.
- Personal guarantee. You’ll likely be required to personally guarantee the loan, which means you’ll be held responsible for repaying the loan if your business is unable to do so.
- Sufficient collateral. You’ll need to have collateral, such as equipment or real estate, to secure the loan.
- Growth potential. The lender will want to see that your business has the potential for growth and success.
Can You Get a Small Business Administration Loan to Start a Business?
Yes, the SBA offers various loan programs for small businesses, including those just starting out. However, eligibility requirements and terms vary depending on the specific loan program.
It is important for potential borrowers to thoroughly research and understand the requirements and terms before applying for an SBA loan.
Can You Get Money to Start a Business Without a Loan?
Yes, there are plenty of alternatives to getting a small business loan, such as a business credit card, merchant cash advances, small business grants, or even personal loans. However, each of these has its own set of pros and cons that should be considered before making a decision.
What Credit Score Is Needed for a Startup Business Loan?
Typically, lenders will look for a personal credit score of at least 600 and a strong personal credit history in order to approve a startup business loan.
However, each lender may have its own specific requirements in regard to personal credit scores and it is important to shop around and find one that fits your needs.
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When it comes to business finances, remember that it’s important to cut costs wherever possible, especially in the early years of a business. This helps to stay afloat when the income is not very large.
Entrepreneurs can significantly cut expenses by buying used equipment for a business. This way, they can get high-quality products for a lower price. Or they can also consider leasing equipment. When you lease equipment, you don’t have to spend additional money on maintaining and repairing it.