Best startup business loans

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Getting your finances in order is a top priority when launching a new business. Without capital to cover startup costs and operating expenses, even the best business ideas will flounder.

While some entrepreneurs self-fund, most seek startup financing to get off the ground. But choosing the wrong lender can saddle you with unfavorable loan terms that become an obstacle. It pays to thoroughly research lending options and select one that aligns with your business goals and financial situation.

To help, we’ve gathered the top business loan companies, along with loan details for three lenders that cater to startups, so you can choose the best startup business loan for your needs.

Compare the best startup business loans

What is a startup business loan?

A startup business loan provides financing to new companies that don't have an established track record or much revenue yet. These loans provide the capital needed to get operations off the ground.

You can use startup loan funds for expenses like renting office space, purchasing inventory and equipment, hiring employees, developing products, marketing and other costs needed to initially run the business.

Startup loans are often offered by online lenders and microloan programs, although you may find them at some banks and credit unions, too.

The loan amount, interest rate, term length, collateral requirements and eligibility criteria vary between different lenders but generally tend to be looser than traditional business loans because they cater to newer companies.

» MORE: How do business loans work?

Types of business loans for startups

Startup loans allow entrepreneurs to bridge the gap between their personal savings and the revenue needed to sustain the business in the early stages.

There are several types of startup loans you can use to fund your venture. Each lender sets its own requirements, but review these common small business loan terms to get an idea if you’ll qualify.

Microloans

Microloans are smaller term loans (usually under $50,000) provided by lenders to help small businesses get started. The loans have less stringent eligibility requirements and can be used for working capital, equipment, inventory and more.

SBA microloans are also small, short-term loans for small businesses, but they’re issued by approved lenders that receive funding from the Small Business Administration (SBA). The max SBA microloan amount is $50,000.

Both are designed to help small businesses access small amounts of financing that might be harder to get from traditional banks. But SBA microloans specifically may offer slightly better terms, like lower interest rates, compared with regular microloans. This is because the SBA guarantees a portion of the loan amount to the lender, reducing risk.

Business lines of credit

A business line of credit provides access to revolving credit, allowing you to draw funds as needed up to a preset limit. The balance can then be paid back and borrowed again.

Lines of credit offer flexibility since the business only pays interest on the amount used, not the full limit. This can be ideal for startups with fluctuating capital needs, seasonal businesses or companies with uneven cash flow.

The biggest downside is finding a business line of credit you qualify for. Many lenders require anywhere from six months to 24 months in business for approval, so they’re not ideal for brand-new startups.

Equipment financing

Equipment financing allows startups to pay for necessary assets like vehicles, machinery or technology over time rather than upfront. The equipment serves as collateral for the loan, so some business owners may qualify with imperfect credit.

Equipment financing works best when the assets are vital for business operations but too expensive to purchase outright. It enables fledgling businesses to obtain must-have assets for growth and operations. Just make sure you use the loan strategically based on your true needs.

Invoice factoring

Invoice factoring allows startups to receive funding against unpaid customer invoices. With invoice factoring, a lender advances a percentage of the invoice total, usually around 70% to 90%, and then customer payments go directly to the lender.

Invoice financing provides emergency cash flow, but it has high costs, including fees if customers are late with payments. Because of this, startups should only use it cautiously if customers are slow to pay.

» MORE: Types of business loans

How to choose a startup loan lender

Choosing the right lender is key to getting a startup loan that aligns with your business needs and financial situation.

“For new businesses without revenue, traditional banks and credit unions may not be the go-to option,” said Joe Camberato, CEO of National Business Capital.

Camberato recommends looking into private and online lenders instead: “Private lenders offer a quicker and more accessible route, catering to a diverse range of businesses, regardless of age or industry.”

Consider these factors when evaluating lenders:

  • Interest rates and fees. Compare rates across several lenders. Watch for hidden fees that hike up costs. Lower rates and transparency are ideal.
  • Loan terms and limits. Evaluate term length, payment schedules, prepayment options and loan limits. Find terms that provide enough capital and flexibility.
  • Collateral requirements. Assess if the lender requires collateral or a personal guarantee.
  • Funding speed. Inquire about the application-to-funding timeline. Online lenders typically have the fastest turnaround times.
  • Experience with startups. “Try to find a lender that specializes in working with startups and one that aligns with your qualifications so that the process goes as smoothly as possible,” said Camberato.
  • Reviews and ratings. Research reviews and complaints regarding the lender. Go with trusted, reputable lenders.

» COMPARE: Best business loan companies

How to apply for a startup business loan

The process of getting a small business loan as a startup is similar to an established business. You typically choose the lender you want to go with and submit an application on that lender’s website.

The process often looks like this:

  1. Choose the type of loan you need and research lenders that offer that type of financing. Look at online lenders, banks and credit unions.
  2. Gather all the required documents like your business plan, financial statements, collateral and personal credit reports.
  3. Fill out the loan application forms completely and accurately.
  4. Submit your application with all supporting documents to the lender. Be prepared to explain your business idea and plans in detail if asked.
  5. Respond promptly to any additional requests or questions from the lender.
  6. Once approved, read the loan offer carefully and make sure you understand the terms and conditions.
  7. Sign the loan agreement, and the lender will disburse the funds into your account.

» MORE: How hard is it to get a business loan?

Alternative borrowing options for startups

If you don't qualify for a traditional startup business loan, consider these alternative borrowing options:

  • Personal loans. Many startups choose to use personal loans to get their business off the ground until they qualify for more traditional funding. Personal loans may come with higher interest rates and smaller loan amounts than regular business loans. But they’re usually quicker to obtain and require less paperwork since only your personal credit is involved in the underwriting process.
  • Crowdfunding. With crowdfunding, you can raise small amounts of capital from a large number of people, typically via an online platform. This taps into your own network as well as the public for funding. But it can take quite an effort to effectively promote and run a campaign.
  • Grants. Government and private grants provide funding that doesn't need to be repaid. But applications can be competitive. Explore what grants you may qualify for through the U.S. Chamber of Commerce. Consider pairing a grant with other types of financing.
  • Angel investors. “Angel investors” are wealthy individuals who invest in startups for an equity stake. (Think Shark Tank but less glamorous.) This route is only practical if you have strong growth potential and are willing to give up ownership interests.
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FAQ

What credit score do you need for a startup business loan?

It depends on the type of startup loan you need. Some options, like invoice factoring, may not require a credit check at all. But others, like SBA microloans, may require a score of 600 to 680 or higher. In any case, taking steps to boost your credit — such as paying your bills on time and reviewing your credit report for errors — will increase your chances of unlocking the best rates and terms.

How much revenue do you need to get a business loan?

Most standard small business loans require at least one to two years of operating history with annual revenue of at least $50,000. But requirements are often more lenient for startups.

Can you use a personal loan to fund your startup?

Yes, you can use a personal loan to help fund your business startup. Just be aware that you will be personally responsible for repayment, so if the business fails, you still have to pay back the loan from your own income and assets. A personal loan is one of the faster and more accessible borrowing options for startups, but it comes with higher personal risk.


Article sources

ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work.

  1. U.S. Chamber of Commerce, “61 Grants, Loans and Programs to Benefit Your Small Business.” Accessed Jan. 22, 2024.
  2. U.S. Small Business Administration, “Microloans.” Accessed Jan. 22, 2024.
  3. U.S. Chamber of Commerce, “How to Apply for a Small Business Loan for Your Startup.” Accessed Jan. 22, 2024.
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