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.
Loan AmountUp to $150,000
Loan Terms6 months - 4 years
Interest Rates7.9 - 19.9%
Time to FundingAs 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 loan, also known as a starter loan, refers to funding for new businesses with little to no history or work 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.
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 Loans for Startup Funding
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!
Not unlike consumer credit cards, a small business credit cards allow you to access revolving credit for the day-to-day operations of your company.
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.
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.