Startup Business Loans

Any kind of business funding for new businesses under one year old can be considered a start up loan.

At a Glance

With strong personal credit, even first-time business owners can qualify for a loan to help with initial startup costs. Startup funding is available in the form of business credit cards, credit line builders, SBA loans, non-profit microloans, personal loans for business use, and more.

amount
Loan Amount Up to $150,000
term
Loan Terms 6 months - 4 years
rates
Interest Rates 7.9 - 19.9%
speed
Time to Funding As little as 2 weeks

Advantages & Disadvantages

  • Safe credit-building tools
  • Quick & convenient access to working capital
  • Great for those lacking business credit history
  • Built-in collateral with start up equipment financing
  • Appropriate for a variety of business purposes
  • Relatively low loan amounts
  • Excellent personal credit required
  • Equipment could quickly become obsolete

What Is A Start Up Business Loan?

A start up business loan refers to funding for new businesses with little to no history or working capital.

There are three common types of start up business loans Start Up Equipment Financing, Business Credit Cards, and Credit Line Builders.

All are great options if you have a strong personal credit score and are looking to build up your business credit, too.

How Small Business Start Up Loans Work

The number one question for new entrepreneurs is how to get early funding for their business.

Small start up loans of up to $150,000 in quick cash or credit are the answer for many looking to get their business of the ground.

Do Startup Loans Require Collateral?

Business relationships require some form of trust, and collateral is just a way of assuring lenders that their investment can be recouped if your entrepreneurial effort doesn’t go according to plan.

Notice that when you finance a car, you don’t actually get the title to the vehicle until you’ve paid off your loan.

This is so that your car can be re-possessed if you stop making payments. 

Having said all that, because small business startup business loans are typically dealing with small funds and capital, collateral is not required in order to secure the funding.

However, with startup equipment financing, the equipment being financed automatically becomes collateral.

Business credit cards and credit line builders do not require any collateral.

Do Startup Business Loans Require Personal Guarantees?

For Small Business Administration loans, personal guarantees are demanded of every entity that owns 20% or more of a business the loan is being applied for.

In some cases, this applies to people who hold “key management positions,” whether they are owners or not. 

In short, if you own a sole proprietorship, then by default you will have to personally guarantee any small business start up loans you secure for your company.

Fortunately, this doesn’t always mean your own personal assets will be on the line.  

Personal guarantees are not as scary as they sound.

One thing that’s typically hard to understand is the marketplace for business start up loans.

A life of entrepreneurship comes with inherent risks, but it’s actually a great time to be a new small business owner since there are more tried and true options for startup business funding than ever before.

Best Business Loans for Startup Funding

Business LoanDescriptionIdeal for
Startup Equipment FinancingUse purchased equipment as collateral for borrowed funds, typically with lower interest rates compared to other optionsBusinesses that depend on expensive commercial equipment such as restaurants, medical practices, construction and trucking companies
Business Credit CardsAccess a revolving credit line for incoming purchasesEntrepreneurs with strong personal credit, online businesses, new businesses pre-revenue
Credit Line BuildersPartner with a financing company to get approved for a set of credit cards, which will help build business creditNew business owners with strong personal credit and methodical spending habits
SBA LoansA government backed microloan for amounts less than $50k, with a longer application process and more stringent requirementsEntrepreneurs from disadvantaged backgrounds and minorities
Personal Loans for BusinessA personal loan taken for purposes of using the borrowed funds for your start-up.Entrepreneurs with no business history or business credit, but with strong personal credit and low credit utilization.

There are not many financing options that are specific to new businesses, but there are a few different loan products which make sense for startups.

Let’s explore small business loans for first-time entrepreneurs and other business financing options that are great for start ups:

Startup Equipment Financing

Whatever business you’re in, you’re going to need equipment to run it.

From universal office equipment like computers and phones to industry-specific tools like shovels and tractors, equipment financing (also known as capital equipment loans or asset-based lending) is a business loan that let’s you use the equipment you’re buying as collateral to secure the loan.

Why Use Equipment Financing?

The most attractive feature of equipment financing is that your lenders can provide a lower interest rate, because the collateral offsets their liability for investing in an untested business owner.

The length of this arrangement can vary from short-term loan to long-term loan, and largely depends on the amount of the loan you’re requesting and how much you can pay up front.

Fortunately, capital equipment loans let you pay off the cost of each piece of equipment while using that equipment to build work capital.

In addition to typically lower interest rates on this kind of loan, startup equipment financing also offers one added bonus:

You can use the depreciation of the equipment as a tax benefit for several years!

Learn more: All About Equipment Financing

Thinking about applying for a startup equipment loan? Here’s what you might need:

Great Personal Credit – Even though you’re providing collateral, you’ll need a detailed credit report that boasts a credit score of 680 or higher to obtain startup equipment financing.

Vendor Quote – This is a statement from the equipment vendor about the cost for each piece you intend to purchase and it will help determine how much you’ll need to borrow.

Statement of Use – A document, written by you, that stipulates how each piece of equipment is integral to your business.

This can typically be copied from your business plan… 

You do have a business plan, don’t you?

Business Credit Cards for Startups

Similar to consumer credit cards, a small business credit card allows you to access revolving credit for day-to-day operations.

Why Use a Business Credit Card?

Business credit cards come with plenty of modern advantages for small business owners.

For one thing, business credit cards add extra value with rewards programs that can reduce out-of-pocket expenses related to office supplies, travel, gas, restaurants, and other business expenses.

Another benefit of going the plastic route?

Business transactions are automatically detailed and kept separate on your business credit card statement.

Keeping your business expenses separate from your personal expenses is a good business practice that will give you an organizational advantage, all the while building your business credit history.

Need we even point out how luxurious it would feel to have a cash flow cushion in case of emergencies?

Depending on your credit limit, you could have tens of thousands of dollars in available credit to keep you cool when money is tight.

If you think a business credit card may be right for you, these points can help guide you in choosing the right one:

  • Evaluate your business’s spending and purchase habits, then explore different rewards programs to find a business credit card that make sense for you. If you’re paying an annual fee to access a rewards program that isn’t paying off, you may want to switch to a card with no annual fee instead.
  • Pay attention to sign-up bonuses: If your business can easily meet the requirements to earn the bonus and the bonus is something you can use, why not cash in?
  • Do you plan to carry a balance? If so, focus on finding a card with a 0% introductory interest rate to save big.

Learn more: Everything You Need To Know About Credit Cards for Business

Credit Line Builders

Ideal for new business owners with excellent personal credit and methodical spending habits, credit line builders are among the less traditional types of start up loans available.

For a credit line builder, you’ll partner with a financing company to get qualified for as many business credit cards as possible in one convenient motion.

Why Use a Credit Line Builder?

Once approved, your available credit amount will be derived from combining the credit limits of all the credit cards you qualify for.

With a credit line builder program, you’ll get access to a set of credit cards you can use to make purchases and rapidly establish business credit.

But be warned: You’ll need to be extra cautious when it comes to credit limits and repayments.

Even one late payment with a single business credit card could lower your credit score.

Habitually making late payments across several cards could have a seriously detrimental effect on your business’s credit health.

This could make it even more difficult to get loans when you need them in the future.

There are a few caveats to be aware of when thinking about using a credit line builder:

  • Don’t overspend with your business credit cards. Late payments and a high credit utilization across multiple cards will be detrimental to your credit score.
  • Focus on sensible, sustainable spending. Never use the credit line builder as a crutch for your company’s operations. Use the product only as intended: as a way to build your business credit line.
  • Note that you’ll need a credit score of 700 or more to qualify.

Learn more: How To Compare Business Credit Tools

SBA Loans and Nonprofit Microlenders

For small business owners seeking under $50,000 in funds, a government-backed SBA loan may be your best bet.

Furthermore, microlenders and nonprofit lenders have a tendency to favor minorities and entrepreneurs in disadvantaged communities.

Why Use SBA Loans and Microloans from Nonprofits?

The sole purpose of the Small Business Administration is to protect the interests of small businesses.

SBA loans are reserved for small business owners that have had trouble qualifying for business loans at traditional financial institutions.

Similarly, nonprofit lenders exist to spur economic growth in otherwise under-developed neighborhoods.

If you or your business fits with their mission, you could qualify for a microloan with a low APR plus added benefits like free training and consulting programs.

Thinking you might qualify for nonprofit financing or an SBA loan?

Keep the following in mind:

  • Microloans are called such for a reason: Don’t expect to get more than $50,000 from microlenders, especially if it’s your first year in business.
  • Many nonprofits rely on donations and grants and such funding limitations can lead to strict borrower requirements.
  • While loan amounts vary, the average SBA microloan is only about $13,000.

Learn more: An Introduction To SBA Loans

Personal Loans for Business

Risky as it may be, cash-strapped new business owners can access financing by leveraging their personal credit to qualify for a personal loan.

Why Use a Personal Loan for Startup Funding?

Under the right circumstances, the dangers associated with personal loans for business are outweighed by the benefits.  

Above all, start ups tend to have trouble qualifying for financing without first establishing a credit history.

This is a valid reason for a new business owner to finance their business through a personal loan.

Moreover, whole process of qualifying for a personal loan can be much quicker than qualifying for it’s business loan equivalent.

You can get approved for a personal loan largely based on strong personal credit score and low credit utilization.

Applying for a business loan will prompt a review of your personal creditworthiness plus a number of other qualifying criteria, and it takes lenders longer to verify all the extra data.

Taking out personal loans to finance a new business venture may be unwise for the following reasons:

  • Even the largest unsecured personal loan amount you can qualify for could be insufficient for your needs.
  • If you do decide to go the route of securing your loan with collateral, you increase your personal liability.
  • Personal loans usually come with high APRs comparable to credit cards, especially if you have poor personal credit.

Learn more: Using A Personal Loan To Fund Your Start Up

Non-Loan Alternatives: Fundraising Your Start Up

Don’t forget to think about viable non-loan options like crowdfunding, grants, and borrowing money from friends and family.

Why Use Fundraising?

Fundraising in the digital age is easier than ever.

Crowdfunding is a popular option for the entrepreneur that wants to validate their target market without much commitment.

Sites like Indiegogo and Kickstarter allow you to solicit donations in exchange for tangible or intangible gifts.

You can be creative with your tiered offerings to deliver value to donors without eating into profits.

If you went to college, you may have fond memories of grants and scholarships.

Application essays, forms, and other minimum requirements aside, getting grants is one of the easiest ways to pay for school.

Grants for small-business owners are similar, except they are even more competitive.

Still, if you put in time completing grant applications, you could end up with some walking-around money

Free of charge.

Where crowdfunding and grants fail, there may be hidden opportunities in your personal network…

Many a great businesses have started with a small loan from a parent or family friend.

Convincing your friends and family members to loan you a couple thousand dollars here and there could really add up.

Fundraising can be a great way to finance your new business without taking on debt, but there are drawbacks:

  • Unless you get some publicity or your concept goes viral, crowdfunding probably won’t get you very much start up capital. And if you don’t raise a certain dollar amount by a certain date, the funds won’t disperse at all.
  • As we mentioned before, small business grants are highly competitive. Applying for grants can take up a lot of time and effort with no real promise of a payoff.
  • Borrowing from friends and family could affect your personal relationships; this is especially dangerous if you haven’t figured out how to generate revenue yet.

Learn more: Finding A Loan For Your New Business

Business Start Up Loan Costs

How Much Does Startup Equipment Financing Cost?

The average interest rate for equipment financing is 20%, but a great credit score may get you something lower.

This can be costly, but equipment financing is one of the most readily available funding for start ups.

If the equipment you need to purchase costs $15,000, and you’re financing the entire purchase at 20% interest, you’ll be paying back a total of $18,000.

Loan terms are usually based on the expected life of the collateral, but you can reduce the amount borrowed by putting a down payment on the equipment you need.

Learn more: Equipment Financing Costs

How Much Does A Business Credit Card Cost?

APRs for business credit cards are usually between 13 – 20%, but pay close attention for additional fees such as annual renewals, late fees, balance transfer fees and foreign transaction fees.

Keep in mind your business credit card rewards programs may offset some of these additional costs.

It’s also possible to get a zero interest business loan through this useful hack:

Many business credit cards come with 0% introductory APRs for periods ranging from 9 months to a year, essentially letting you take out interest-free loans.

You should take advantage of these grace periods to make smart purchases for your business.

Learn more: How To Calculate APR vs. Interest Rate

How Much Does A Credit Line Builder Cost?

The costs for the credit line builder are similar to those for business credit cards, but with one major difference.

In return for the business credit cards, you pay the financing company a one-time origination fee calculated as a percentage of your approved amount.

Learn more: An Epic Guide to Business Credit

How Much Does An SBA Loan Cost?

SBA 7(a) loans come with fees ranging from 0% for loans under $150,000 to 3.5% for loans over $700,000.

If your loan is especially large, you can expect additional fees on any amount over $1,000,000.

Meanwhile, interest rates are capped for 7(a) loans and will be lower than traditional financing options.

How Much Does Nonprofit Financing Cost?

If you can qualify, microloans from nonprofit lenders can be very affordable.

Nonprofit microlenders aren’t in it for the money:

Their mission is typically geared towards helping economically disadvantaged communities.

Learn more: SBA Loans & Nonprofit Financing

How Much Does A Personal Loan For Business Cost?

Highly dependent on your personal credit history, a strong credit score can get you a personal loan with an APR as low as 4%.

Don’t forget about loan origination fees and late payment fees though!

How Much Does Fundraising Cost?

Going the fundraising route may be the most cost-effective option if you are able to generate enough capital.

You don’t need to pay the money back at all with grants and crowdfunding!

And obviously, when borrowing from friends/family you have a lot more flexibility with loan terms.

How to Qualify for a Small Business Start Up Loan

Even first time business owners can qualify for a small business loan to help with start up costs.

In the absence of revenue history, the most important factor lenders will consider is your personal credit score.

The higher your personal credit score, the better your chances of qualifying for these financing products.

How Long Does Funding Take?

Small business startup loans are usually dealing with a relatively small amount of capital.

Once an application is approved, funds can be disbursed quite quickly.

Sometimes it’s done within two weeks—

Or about the same amount of time it takes to get a credit card in the mail.

How Should I Choose A Startup Loan?

In general, you want to look out for additional fees, fluctuating interest rates and grace periods for 0% APR.

Most major banks and credit unions give loans for starting a business.

However, even Bloomberg advises against financing your new business through bank loans.

Learn more: 5 Truths Your Banker Doesn’t Want You Knowing

How to Apply for a Start Up Business Loan

In order to expedite the process, you should have certain documents ready before applying for a loan.

Here’s what you’ll need to apply for start up financing:

  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Balance Sheet
  • Profit & Loss Statements
  • Business Plan
  • Business Tax Returns
  • Personal Tax Returns
  • Business Debt Schedule
See Loan Options
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