Best Startup Business Loans for Entrepreneurs
You may be considering a business loan to start your business. Getting your start in business is enticing—especially when you think about how personally and financially rewarding entrepreneurship can be.
Applications to start a new business reached 5.4 million in 20201. As a result, these businesses have a choice about funding their companies.
Choosing the best startup business loan can bring tremendous value, including:
- The ability to borrow enough cash to pay for expansion projects
- Interest rates that are favorable for business owners who qualify
- An increase in cash on hand for operating costs
- Greater flexibility around the length of time toward repayment
- Build and protect your business credit with a boost to your finances
There is also a consideration for alternative financing solutions. For example, some businesses find the availability, terms, and rates favorable compared to traditional loans. But more on that later.
Here are some of the best startup business loans to consider.
SBA Loans as Business Startup Loans
Business owners are looking for cash for equipment, emergency expenses, and working capital. There are numerous reasons that business owners are looking for flexible and reliable funding.
The length of time you have been in business, the amount of funding you need, and how soon play a role in the financing that you should choose. In addition, your credit standing will play a role in deciding on a loan for your business.
One of the small business lending leaders is the Small Business Administration (SBA). One of the most significant benefits of an SBA loan is the partnership with lenders.
This partnership tends to result in better terms and more specific qualifications for small businesses. For example, one of the most common SBA loans for business startup loan options is the SBA 7(a). With options as high as $5.5 million and terms that extend up to seven years, owners who qualify enjoy substantial funding. However, these loans with favorable terms carry increased paperwork and slower approval speeds.
Businesses are in a better position for these loans if they can endure the time it takes to obtain approval. Another SBA loan is the CDC/504 loan. Use case limitations mean this is explicitly to purchase real estate or machinery. 504 loans carry terms up to 25 years and $5 million.
Pros and Cons of SBA Loans as Business Startup Loans
In addition to having large funding amounts, the SBA limits how much interest a lender can charge. So all of that excellent funding can go to work for your business not but without qualifications.
A borrower can expect general requirements which may allow them funding where they would otherwise miss out. However, a down payment comes with these loans. If you are new in business, you may not have enough cash saved to support an ideal down payment.
Businesses that could struggle to qualify may be able to land a loan through the Small Business Administration. However, owners are personally liable for small business startup loans through the SBA.
Resources available make support easy to find for SBA loans. However, you should still be aware that businesses that can ride out the lengthy approval process are better suited for SBA loans.
Business Startup Loans from Microlenders, or Microloans
Lenders outside of the SBA program also offer what’s known as microloans. These loans provide a more straightforward path to qualification. As a result, they are an option for those starting without a long-standing revenue history.
Lenders within this category also carry a focus on underserved communities and minority business owners. In addition, the program provides loans up to $50,000 that also aid not-for-profit childcare centers getting their start.
Meanwhile, the average amount of a microloan is around $13,000. The qualification and approval from a traditional bank can be difficult. As a result, eligible borrowers can work with intermediaries that the SBA designates for technical assistance.
Growing your business can be simpler when you work with this mission-oriented lenders. In addition, future funding can be a part of your plan with these organizations.
Knowing the Ins and Outs of Business Startup Funding from Microloans
Microloans, much like their name implies, are generally smaller lending solutions. However, if your business is in a position to spend several hundred thousand dollars on equipment or real estate, microloans are not the best option.
However, these funding items can carry lower interest rates. The average interest rate from a microlender ranges from 6%-9%. More flexible capital for your business after borrowing is always a win. Still, it is relevant that capping out at around $50,000 means the financing won’t cover ALL of your operating expenses.
Even with little to no collateral, you can secure a microloan. A traditional lending solution typically requires sizeable collateral. Making these easier to obtain is a tick in the positive column for business startup funding.
Another thing to be aware of is the repayment terms for microloans. The time you will have to pay back the loan can be much shorter than traditional loans. Even the SBA’s other options can carry longer terms that might better fit your business.
Online Business Lenders also offer Business Startup Loans
Business owners who are up and running but have a short operation window also have some lending options. In fact, in 2020, 32% of small business owners who applied for financing used online lenders. That number is likely to climb.
The growth of online lenders matches the need for business startup loans for businesses with at least six months of operating. Depending on your chosen lender, both extended and short-term loans may be available for business owners.
Even startup business lines of credit are gaining popularity. While the loans may generally carry higher interest rates and smaller amounts, newer business owners now have a path to funding.
Here are some online business loans for startups you might consider:
|
LOC – Line of credit |
LOC2- Line of credit |
Financing |
|
|---|---|---|---|
|
Maximum loan amount |
$150,000. |
$250,000. |
$250,000. |
|
Repayment terms |
12 or 24 weeks. |
6 or 12 months. |
12 to 60 months. |
|
Estimated APR |
APR Values |
APR Values |
APR Values |
|
Qualifications |
|
|
|
Personal Business loans as Startup Business Funding
Protection for a lender is crucial. Most entities providing funding want to minimize risk. For this reason, new business startup loans often come from personal business loans.
These lending items find support from personal credit history of responsible capital usage and tend to be competitive. Business startup loans in the form of personal business loans can carry high-interest rates. Those rates cap out at 36%!
A robust income and an outstanding credit rating will help secure a personal business loan.
Using a Personal Business loan wisely for Startup Business Funding
A personal loan can be a terrific option for business owners without a long operation history. In addition, with it being easier to qualify for a personal loan, some owners find the funds they need without the business credit that business loans often require.
However, lenders still need to protect themselves from unnecessary risk. For that reason, interest rates can be higher depending on your personal credit score. Still, this may be a favorable option with how quickly a lender can disburse funds for a personal loan.
Personal loans also have little to no collateral requirements, as long as your application is for unsecured loans. As a result, your business does not have to shoulder the risk in these cases, which can bring peace of mind to borrowing.
In addition, use-case limitations are fewer with personal loans. For example, business loans can require equipment or real estate funding. With a personal loan, you can invest the cash, utilize it for expansion, or cover payroll and operating expenses.
The best option with a personal loan for business is to know your credit rating, apply for a loan with requirements that suit your business, and have a clear picture of the timeline in which you need funds.
Small Business Startup Grants
In addition to private foundations, business startup funds can come from the small business administration’s business grants. These options are picking up steam even when business startup loans aren’t an exact fit.
They can be difficult to secure with their requirements. However, the capital for your business can be well worth it because there is usually no repayment requirement.
Suppose your business is in the same field or has the same mission as a foundation. In that case, you might be eligible for this type of financing—Research the small business startup grants in your area to find the most suitable options for your organization.
Getting your Start with Small Business Grants
While getting a grant or “free money” can be enticing, there are still considerations to getting your start with business grants. Business owners take pleasure in funding that does not need a repayment. However, it’s essential to know the application process is often labor intensive.
Getting information about grants is more accessible than in years past, even while the application process can be time-consuming. In addition, your service-specific use for the funding is usually a requirement.
Much like the use-case limitations of some traditional loans, a grant can require you to provide how you will use the loan. Details may include market demographics, budget items, and projections. Unfortunately, the planning and research this process demands can sway some business owners away from grants.
Free money has its contingencies can requirements that need diligent consideration before accepting this type of funding.
Friends and family
Countless business owners get their start with financing from friends and family. This path also tends to be favorable compared to traditional startup business loans. If your credit still needs work, then your family can often work with you on reasonable terms.
Responsible borrowing still applies and works in your favor at the next family gathering. However, personal challenges can arise when borrowers are not prompt about repayment. Selecting the friends and family you choose for lending is always a best practice.
Credit Cards in place of Startup Business Loans
Regardless of the occasional pitfall, business owners still opt for business credit cards as funding options. So long as you can repay the balance quickly, the cash is available and tends to be flexible.
Rewards programs can make it user-friendly as cash back and travel miles tend to come in handy down the road. Earning from your spending is beneficial so long as you can manage credit card usage responsibly.
Interest rates can catch up quickly if you aren’t prompt, so be cautious of using business credit cards in excess. On the other hand, maintaining your credit rating and tackling high-interest debt can keep you looking suitable for lending items in the future.
Challenges of Charging Startup Costs to Credit Cards
Some business owners see value and versatility in using credit cards to finance their startups. Being able to maintain control of equity can be very attractive. Moreover, your business might better demonstrate its connection to ownership with some credit cards. Finally, custom reporting on the company’s progress can be more straightforward with credit card statements and reports.
The liquidity of credit cards means you can use your finances to operate your business without providing collateral. In addition, depending on your credit rating, the funds can be relatively inexpensive compared to some traditional funding.
However, the potential for expenses to overlap and merge exists. Business owners have at times damaged their credit rating with poor management of credit cards. Insufficient funding challenges also shift your credit outlook for future lending.
Even with low or no interest options, personal expenses spilling over into business is a recipe for a headache. Instead, consider credit cards whose design is specifically for your business. Keeping the financial and legal responsibility of personal credit card usage out of your business can save you time and money.
Angel Investors and Crowdfunding for Business Startup Funding
Business owners and those with a vision for their products are choosing crowdfunding in growing numbers. Small businesses are turning to Indiegogo, Kickstarter, and others to reach a public ready to back their project.
Rather than standard loan repayment terms (which may carry high-interest rates), your investors or backers receive “perks.” The perks of contributing to your business’ start can include gifts, your finished product, or other benefits of your choosing.
Testing out your product’s interest often comes from crowdfunding, as the public response is an excellent success metric. Have an earnest look at the impressions of your business or product with crowdfunding, and you can dial in on the finer qualities of your business.
Keep an Eye Out for a Few things with Startup Business Loans
Businesses with a short operating history or that cannot demonstrate a strong credit rating may face challenges. As a result, lenders tend to want to minimize their risk. Moreover, those lenders who have less stringent qualifications tend to have higher interest rates as a result.
Demonstrating your financial ability for repayment is essential. It might work out that some loans work for your business in years ahead more than they do in the present. Staying on top of your credit score and checking in with financial institutions can keep you in the loop on loan requirements.
The Small Business Administration makes many of their qualifications for loans publicly available. In addition, consumers are entitled to a free credit report annually without impacting their rating. It is helpful to look at these reports to ensure you manage your finances appropriately.
Banking with Experience
Small business owners are looking for partners they can trust. That’s why they choose Small Business Bank. Years of experience you can trust means support as you grow your new business. Being in a position to pursue your professional ambitions has never been more worthwhile than with a team like this.
Log on now to find out how you can open an account with Small Business Bank and begin enjoying the connections to professionals who understand the business world. Don’t waste time with old institutions that have not caught up to the speed of your business. Now is the moment you chart a course for your financial freedom.
