It is difficult to get a loan to start a new business. Banks, and even many alternative lenders, will only lend to businesses that are a year or two old and that make revenues of at least a few thousands dollars per month.
In general, young businesses have two options for new business loans if you’ve been in business for under 1 year. You can borrow based on your cash flow or from nonprofits that specialize in lending to new businesses.
Below, we review some of the best options for getting financing for new businesses. If your startup is pre-revenue, read our guide to startup funding. If you have been in business for 1 year and have $2,500 in revenue per month, you actually might be able to get a business loan with Kabbage.
Best Lender for New Business Loans: Accion
We recommend Accion for startup loans because it’s pretty easy to get approved, and you can get long term loans (up to 5 years) at relatively low interest rates.
Type of Loan
Merchant Cash Advance
Advance on future unpaid invoices
Loan based on PayPal sales
Minimum credit score to get accepted
Other requirements to get approved
of income or cosigner;
sufficient cash flow
for monthly payments
At least 3 months in business;
$2,500 monthly revenue;
debit/credit card receipts
At least 6 months in business
and unpaid invoices
3 months as PayPal merchant
and at least $20K
in annual PayPal sales
10 business days
How much do they lend?
$500 - $30K
$5K - $500K
$100 - $25K (works like a line of credit)
$1,500 - $85K
6 months - 5 years
Until paid back
No fixed maturity date, but typically takes 1-18 months
18 % to 35 %
50 % to 80 %
38 % to 54 %
15 % to 30 %
Best Lender for Startups
Accion is a nonprofit that issues microloans (up to $30,000) to startups. We recommend them because it’s pretty easy to get approved, and their rates are among the most affordable for startups.
Accion is a true startup lender. As long as you have a credit score of at least 525, even home-based startups with absolutely no sales history can get an Accion loan of up to $5,000. If you have at least 6 months of sales history, you can quality for a larger loan up to $30,000. Your business doesn’t need to be profitable to get an Accion loan, but you should have an external source of income (e.g. another job or spousal income) or a cosigner depending on which type of loan you want. Startups under 6 months old should also be prepared to submit a business plan with 12 months of cash flow projections.
The interest rates for Accion loans are pretty affordable. The APR ranges from 18-35%, which is 3 to 4 times lower than a typical merchant cash advance and lower than the interest rate on most Fundbox and RapidAdvance loans.
Read our Full Accion Review
Best Lender for Startups with Credit or Debit Card Sales
If your startup processes credit or debit card payments and is at least 3 months old, you may qualify for a merchant cash advance from RapidAdvance. In a merchant cash advance, the lender buys your future credit and debit card receivables at a discounted rate and advances you a lump sum of money. You pay back the loan by giving a share of your daily credit and debit card sales to the lender.
The primary benefit of a RapidAdvance merchant cash advance is fast approval. You can generally get same day approval with RapidAdvance, while approval takes about 10 business days with Accion.
The downsides to RapidAdvance are the revenue requirements and the cost. Some startups will not be able to meet the revenue minimum of $2,500 per month. As far as cost goes, APRs can range anywhere from about 50 % to 80 % depending on the borrower’s volume of credit/debit card sales and creditworthiness.
Read our Full RapidAdvance Review
Best Lender for Startups that Invoice Customers
Fundbox is designed to help startups that invoice customers for goods or services but aren’t due to get paid for a few months. Fundbox bridges your cash flow gaps by advancing you the invoice amount, and you pay it back over 3 months.
There are two benefits to using Fundbox: there’s no credit check, and the loan works like a line of credit. This means that if Fundbox loans you $10,000, and you pay back $6,000, you can clear an additional $6,000 in invoices. Instead of relying on credit score, Fundbox bases its approval decision on how likely it is that the person or business you invoiced will actually pay you.
On the downside, you need to have been in business for at least 6 months to borrow from Fundbox. Also, the maximum term of the loan is 3 months, whereas Accion issues loans of up to 5 years. The cost of a Fundbox loan is somewhere in the middle of the pack, a bit higher than Accion and PayPal but lower than a merchant cash advance from RapidAdvance.
Read our Full Fundbox Review
Best Lender for Online Startups
PayPal Working Capital is a fast and pretty inexpensive source of funding for online startups that have at least 3 months PayPal history and $20,000 in annual PayPal sales. Just like Fundbox, no credit check is required to qualify for a PayPal loan, and approval is extremely quick.
The amount you can borrow is quite small, typically 4 % to 15 % of your business’ annual PayPal sales. While this isn’t a lot of money, the repayment plan is flexible. You can choose what share of your daily PayPal sales goes towards repayment. There’s no fixed maturity date, though you must make certain minimum monthly payments for the first 18 months. A fixed percentage of your daily PayPal sales are deducted each day until the balance is paid in full.
The APR ranges from 15 % to 30 %, which is even cheaper than Accion and well below the APR charged by many other short-term lenders. This makes PPWC a great, inexpensive option for PayPal merchants who need to borrow a small amount of capital quickly.
Read our Full Paypal Working Capital Review
Loan Sizes and Terms
The loan amount that you can qualify for depends on your startup’s actual or projected cash flow. RapidAdvance lends up to $500,000, but you can usually qualify for no more than 9 % of your business’ annual gross sales. In other words, if your business makes or is projected to make $100,000 in annual gross sales, you can only borrow $9,000 as a merchant cash advance.
PayPal and Accion also have cash flow-based caps on how much they will lend to you. PayPal lends 4% to 15% of your annual PayPal sales. Accion requires your actual or estimated cash flow (the amount of cash you have left over after you pay all your bills) to be approximately twice as much as your monthly loan payments. If you’re a brand new startup, the business plan you submit to Accion will estimate your cash flow for the year. Fundbox bases how much it will lend based on your unpaid invoices, with a maximum loan size of $25,000.
If affordable loan payments are your main concern, then you should look for a provider that offers long repayment times. Accion lends for up to 5 years, and a merchant cash advance from RapidAdvance will remain outstanding for as long as it takes to pay it back. PayPal Working Capital also has no fixed maturity date, though you must pay back at least 10 % of the loan amount every 3 months for the first 18 months. Fundbox lends for a shorter period of time–3 months.
In general, you should be aware that the longer you borrow for, the costlier your loan will be. You end up paying more in interest and fees when you borrow for a longer time.
Startups don’t have a lot of options for borrowing money, but choose wisely among the options that are open to you. You can compare different loan products by calculating the Annual Percentage Rate (APR), which measures the cost of a loan over one year.
PayPal Working Capital loans are the least expensive of the bunch, with an effective APR of 15 % to 30 %.
RapidAdvance is the most expensive of the four providers. The APR ranges from about 50% to 80%. This is not surprising for a merchant cash advance. Your APR with RapidAvance depends on three things: the discount at which RapidAdvance buys your future credit card receivables, the amount of credit card sales you make every month, and RapidAdvance’s share of your credit card sales. You can use this calculator from Fundastic to estimate the APR of a merchant cash advance.
Lenders take a bigger risk when loaning to startups, so the interest rates on startup business loans tend to be much higher than what an established business would qualify for. If you have personal funds, such as home equity or a retirement account, that you can invest in your startup, this will be cheaper than obtaining a business loan. We have a separate guide about personal investment in business and personal loans for funding a startup. This guide is strictly about business loan sources for startups.
If you personally guarantee a loan, the lender can come after your personal assets (e.g. your car and home) if you don’t pay back the loan. You are responsible for paying the loan back even if your business fails and closes down.
If you get a loan from PayPal Working Capital, you must continue to use PayPal to process your online sales until the loan is repaid. If you don’t, the balance of the loan becomes due immediately. With RapidAdvance merchant cash advance, you must process sales with a specific credit card processor that’s agreed to during the underwriting process.
Best Lender For New Business Loans - Bottom Line
While startups have traditionally found it difficult to borrow money, each of the four providers we’ve discussed above will lend to businesses under a year old. Accion is our top pick overall for startups because it offers the lowest interest rates and has pretty easy-to-meet qualification criteria, even for brand new home-based startups.
You can also consider the other providers, depending on your type of business. If you accept credit or debit cards, then you can qualify for a merchant cash advance from RapidAdvance. Businesses that invoice clients and want to bridge cash flow gaps while waiting for clients to pay them may do well with a start up business loan from Fundbox. Finally, PayPal working capital offers loans to PayPal businesses.
Whichever provider you choose, keep in mind the constraints of loan cost, the amount you can qualify for based on your cash flow, and the length of your loan.
Did you know? If you have more than $50,000 in your retirement account you can use this money to start or buy a business without paying early withdrawal penalties. Click here to learn more.