A startup business loan encompasses any type of financing aimed specifically toward startups with little to no business history. Although it may not be as easy to access funding as a new business, there are still a variety of business loans and financing methods available to startups, including—SBA microloans, asset-based loans, business credit cards, and more.
When you’re looking for small business loans as a startup, you might be unsure of how the process of acquiring financing works. If you’re searching for business financing for the first time, this is completely understandable—plus, things are all the more confusing because there isn’t a single type of financing that qualifies as a “startup business loan.”
As we mentioned above, a startup business loan can refer to any type of financing that’s designed to accommodate newer businesses.
Therefore, you might access a startup business loan that functions as traditional debt financing—where you receive capital and pay it back over time with interest. On the other hand, you might find that equity financing is better suited for your startup—in this case, you’ll receive funding in exchange for shares or stock in your business.
In any case, although business startup loans can work differently based on the specific product and lender—the most important thing is that the loan works for your business. The right financing product for another startup might not necessarily be what’s right for your startup—so you’ll want to make sure that whatever type of startup business loan you choose is one that can meet your unique funding needs, and of course, is one that you can afford.
All of this being said, let’s take a look at some of the top options for startup business loans, summarized below:
|TYPE OF FINANCING||BEST FOR||WHERE TO GET IT||MORE INFORMATION|
Affordable, traditionally structured loans; qualified business owners
Local SBA microlenders
Learn more about the SBA Microloan program.
Specific financing needs—receiving capital for outstanding invoices or purchasing equipment
Invoice financing: BlueVine, FundboxEquipment financing: Crest Capital, Balboa Capital
Learn more about asset-based lending.
Business credit cards
Fast access to a line of credit; startups with less than six months in business
Chase, American Express, Capital One
Compare the best business credit cards for startups.
Personal loans for business
Very new startups; business owners with great personal finances and credit history
Rocket Loans, local or national banks that you already have a relationship with
Find out more about when it’s worth using a personal loan for business.
Small business grants
Access to capital that you don’t have to pay back; startups in specific industries or communities
Government programs, like SBIR or STTR; corporate organizations like FedEx and Visa
Explore the different options for small business grants
Friends and family
Flexible and fast funding; business owners who have a network willing to invest
Friends and family within your network
Find tips for raising money through friends and family.
Small amounts of capital; testing a product or creative idea
Crowdfunding platforms like Kickstarter or Indiegogo
Learn more about how crowdfunding works.
With this overview in mind, let’s break down these small business loans for startups in more detail:
Overall, because there is no single option for small business startup loans, it’s difficult to detail specifically how you can qualify for financing as a startup.
Ultimately, the business loan requirements you’ll need to meet will depend largely on the particular product you’re interested in, as well as the lender, financial institution, or investor you’re working with.
This being said, however, there are some general tips you can keep in mind when trying to qualify for business startup loans.
First and foremost, if you’re looking for more traditional types of financing, you’ll want to make sure the lender works with younger businesses. Generally, it’s harder for businesses with less than six months in operation to find traditional loans. In this case, you may turn to one of the alternative options we’ve discussed—like a business credit card or grant.
Or, if you can offer collateral to secure your financing, like with invoice or equipment financing, you might find that a lender is more likely to work with your business, regardless of how long you’ve been operating.
On the other hand, if your business is older than six months, you should be able to find a lender, like a microlender, that will work with your startup.
In addition, another of the most important things to consider when trying to qualify for a startup business loan is your personal credit score.
Almost any lender will look at your personal credit score when you apply for financing—the higher your score, the better your changes are for qualifying for a loan—and one with the best terms and rates.
Of course, this isn’t to say that there aren’t business loans for bad credit—however, as a startup, it may be even more difficult to access those types of products.
Therefore, if you need to work on improving your credit, you may again decide to turn to more creative funding methods to finance your business in the meantime.
Once again, like the requirements you need to qualify for a business startup loan, the application process you’ll need to complete will vary based on the method of financing you choose, as well as the lender or investor you’re working with.
If you’re applying for a more traditional type of financing, like a microloan or line of credit, however, you can expect to fill out an application with your basic personal and business information, as well as provide certain documentation.
Overall, you can expect to provide any or all of the following:
Additionally, if you’re applying for asset-based debt financing, you’ll need to provide information and documentation regarding the outstanding invoices you have or equipment you’re looking to purchase.
On the other hand, more creative financing methods will have different application processes:
Generally, it’s much more difficult for a startup business to access a traditional, long-term loan from a bank or other lender. In short, lenders are hesitant to issue traditional loans to startups because they don’t have the time in business to demonstrate that they’ll be able to pay back the money they’ve borrowed. In this way, working with startups is much riskier for lenders.
This being said, however, some online, alternative lenders will be more likely to offer financing to startups—and can provide short-term loans, lines of credit, or certain types of asset-based financing. Of course, it’s important to remember that these products may be more expensive, with small amounts and shorter repayment periods, than more traditional term loans.
With this in mind, it will be easier for you to get a startup business loan if you have strong qualifications (credit history, financials or financial projections) and significant collateral to secure the loan.
If you’re looking for financing, it’s important to understand how much capital you can get from a loan as a startup. Generally, because startups are riskier to work with, you’ll find that lenders will offer smaller amounts with shorter repayment periods.
As an example, SBA Microloans are available in amounts up to $50,000 with a maximum repayment period of six years. If you’re working with an alternative lender, you may be able to access larger business loan amounts, up to around $250,000—but these products will typically have terms of one year or less—and can have higher interest rates.
Ultimately, however, the amount you can get for a startup business loan will depend largely on the type of loan, the lender you’re working with, and your qualifications.
Although it is possible to receive a bank loan for your business as a startup, it’s not very likely. In fact, even businesses who have been operating for a few years will find it much more difficult to qualify for a bank loan than any other type of business loan.
Generally, banks will require that businesses show the highest qualifications to qualify for a loan—including a few years in business, strong business financials, and excellent credit. This being said, however, if you have great personal credit, can offer up sizable collateral, and have impressive financial projections, you may be able to find a bank that can offer you a startup loan.
In this case, you may start with your local or community bank, as these banks may be more flexible than larger, national banks.
On the other hand, if you don’t have strong qualifications, you’ll find that a bank isn’t likely to lend to your startup. In this situation, you may turn to alternative financing options to gain access to capital while you build up your credentials, or you might decide to work with online lenders who typically have more lenient requirements for businesses to qualify for a loan.