Startup business loans can be difficult to get because lenders know that newer companies have a high failure rate. If you have less than two years’ time in business, most lenders will classify you as a startup.
The good news, however, is that different types of startup funding options are available if you’re a new business owner, and we’ve listed some of the best ones below. Each has its own set of pros and cons, and you can choose the one best suited for your needs. To improve your approval odds, we also recommend viewing our tips on how to get a small business loan.
Startup Loan/Funding Source | Brief Description & Recommended Fit |
---|---|
Personal Loan for Business Purposes | Business owners who have good personal credit and need up to $100,000 in funding |
Home Equity Loan (HELOAN) or Home Equity Line of Credit (HELOC) | Business owners with sufficient home equity and are willing to risk personal assets in the event of a business failure |
Equipment Financing | Business owners who need equipment that is critical for daily business operations and revenue generation |
Business Credit Cards | Business owners who need funding for daily expenses and intend on paying the balance in full within several months |
Small Business Administration (SBA) Loan | Businesses with good credit, a solid business plan, and no need for fast funding |
Rollover for Business Startups (ROBS) | Business owners who want tax- and penalty-free access to their personal retirement accounts |
1. Personal Loan for Business Purposes
Typical Rates & Terms | |
Starting Annual Percentage Rate (APR) | 5% to 9% |
Loan Amount | Up to $100,000 |
Loan Term | Up to 5 to 7 years |
Repayment Schedule | Monthly |
Funding Speed | 1 to 4 days |
Typical Qualifications | |
Credit Score | 680 |
Income | 50% debt-to-income ratio or less |
Personal Guarantee | May be required |
Who It’s for & How to Apply
Personal loans focus on your personal credit and income rather than that of your business. As a result, this source of funding can be a good choice if your business has not yet established a sufficient track record to qualify for a traditional business loan.
Depending on the lender you choose, a personal loan may have restrictions as to what the funds can be used for. For instance, loans may be restricted to the purchase of a vehicle, disallowed for use in certain high-risk industries, or disallowed for buying another business (read our guide on how to get a loan to buy a business).
If you’re considering getting a personal loan to fund your business, you’ll need to check the terms and conditions of your loan. Look for any such restrictions that may impact your intended use of the money.
You can get a personal loan from many different banks, credit unions, online lenders, and loan brokers. We’ve compiled a list of the best personal loans for business funding, with Upstart being our best overall pick thanks to its low starting rates and fast funding speeds.
2. Home Equity Loan or Line of Credit
Typical Rates & Terms | |
Starting APR | 6.75% to 10% |
Loan Amount | Up to $250,000 |
Loan Term | 10 to 30 years |
Combined Loan-to-Value (CLTV) | 80% |
Funding Speed | 21 to 45 days |
Typical Qualifications | |
Credit Score | 660 |
Income | 50% debt-to-income (DTI) ratio or less |
Asset Reserves | 0 to 6 months |
Who It’s for & How to Apply
If you own a home and have enough equity in the property, you could tap that equity for funds by using a HELOAN or HELOC. Getting a HELOAN or a HELOC is a process that can take around 30 days. During that period, lenders will verify your credit, income, property value and condition, assets, and more.
HELOANs offer a lump sum of funds that can be deposited into a bank account of your choosing. A HELOC is a revolving line of credit that gives you the flexibility to draw funds on an as-needed basis. As you pay down your balance on a HELOC, you can continue to draw more funds. In exchange for this flexibility, however, rates on a HELOC are often variable and may be higher than that of a HELOAN.
Rates on these types of loans often fluctuate based on the current prime rate. For many lenders, the best rates are often offered within 0.50% of the prime rate. You can learn more about it in our guide on what the prime rate is, how often it fluctuates, and how it affects the rate you get.
To find a HELOAN or HELOC right for you, consider checking out LendingTree. It is a marketplace lender that can provide you with multiple loan options.
3. Equipment Financing
Typical Rates & Terms | |
Starting APR | 6% to 8% |
Loan Amount | Up to $1 million |
Loan Term | 5 to 7 years |
Repayment Schedule | Weekly, monthly, seasonal, and deferred |
Funding Speed | 1 to 4 days |
Typical Qualifications | |
Credit Score | 620 |
Time in Business | 6 to 12 months |
Revenue | $50,000 to $250,000 annually |
Down Payment | 0% to 20% |
Who It’s for & How to Apply
Equipment financing can be used to acquire business-related equipment. Compared to other types of business financing options, this can be easier to get as a startup because it uses the equipment as collateral. By doing this, lenders can take the equipment in the event you default on the loan, allowing the lender to recoup some of its financial losses by reselling or otherwise repurposing it.
Equipment financing comes in two main forms. You can get an equipment loan or an equipment lease:
- Equipment loan: An equipment loan allows you to purchase the equipment and gain full ownership of it once the loan balance is paid. Check out our guide on equipment loans to learn more about whether this might be the right choice for your company.
- Equipment lease: An equipment lease allows you to rent equipment. Leases tend to have lower payments than loans, but you’ll typically be expected to return the equipment once the lease term expires. Learn more about this in our guide on equipment leases.
If you’re considering either an equipment loan or lease, we recommend considering Smarter Finance USA. It has flexible qualification requirements and can offer competitive rates. It is also a loan broker with nearly 40 lenders in its network, which can improve your approval odds.
4. Business Credit Cards
Typical Rates & Terms | |
Starting APR | 29.9% |
Loan Amount | $5,000 to $75,000 |
Loan Term | Revolving |
Repayment Schedule | Monthly |
Funding Speed | 5 to 7 days |
Qualifications | |
Credit Score | Varies, but 680 is recommended |
Time in Business | 0 to 12 months |
Revenue | Varies |
Who It’s for & How to Apply
Small business credit cards can be ideal for small, medium, and recurring expenses. Interest rates do tend to be high, so it’s recommended that you pay off the balance within several months to reduce the interest charges. In most cases, you can avoid interest charges altogether by paying your statement balance in full.
Some small business credit cards can also help you reduce the effective cost of your expenses and provide additional benefits. Some examples include:
- Introductory or promotional rates as low as 0%
- Cash back or rewards programs for qualifying purchases made to the business credit card
- Bonus cash back or rewards for purchases made in specified categories
- Sign-up bonuses form new cardmembers
- Purchase protection, extended warranty, or theft protection for qualifying purchases
- Expenses management and tracking via employee credit cards
The best credit card will vary depending on your specific business needs and qualifications. You can see our recommendations for the best small business credit cards, with the best overall pick currently being the Chase Ink Business Unlimited® credit card.
Apply for Chase Ink Business Unlimited®
5. SBA Loans
Typical Rates & Terms | |
Starting Interest Rates | 6.75% to 16.50% |
Loan Amount | Up to $5.5 million |
Loan Term | Up to 25 years |
Repayment Schedule | Monthly |
Funding Speed | 1 to 3 months |
Typical Qualifications | |
Credit Score | 680 |
Time in Business | 1 to 2 years |
Debt Service Coverage Ratio (DSCR) | 1.25x |
Revenue | Varies |
Who It’s for & How to Apply
SBA loans are insured by the government but issued through individual lenders. These loans tend to offer competitive rates but often require good credit and business finances to qualify. The SBA sets some eligibility criteria, while many others are determined by individual lenders. Check out our guide on how to get an SBA startup loan for information on the process.
The SBA provides different types of loan programs, each with allowable uses and different rates, terms, and qualification requirements. Some common SBA loan programs include:
- SBA 7(a) loans: This is the most common type of SBA loan program and allows you to use funds for a variety of business purposes such as working capital, equipment, inventory, and other costs. Check out our article on SBA 7(a) loans for more details.
- SBA Express loans: These loans fall under the SBA 7(a) loan program but can provide funding on an expedited timeline. Lenders have more authority to make decisions on behalf of the SBA, and as such, approval times tend to be much shorter. If you think this loan program might be right for you, also read our guide on the SBA Express loan program.
- SBA 504 loans: Loan proceeds from this type of loan must be used for fixed assets that are designed to create jobs or aid in business growth. Common examples include the purchase of land, machinery, or office buildings. Head over to our article on the SBA 504 loan to learn more.
- SBA microloans: This loan program can provide up to $50,000 in funding. It can be a good choice if you don’t have large funding needs. The SBA states that the average microloan is around $13,000, and you can learn more about this type of loan in our guide to SBA microloans.
If you’re considering an SBA loan, we recommend working with a loan broker like Lendio. It has a network of over 75 lenders and provides you with the ability to work with a dedicated loan specialist to help you choose the loan best suited for your business needs.
6. ROBS
Typical Rates & Terms | |
Initial Setup Fee | $3,000 to $5,000 |
Monthly Maintenance Fee | $100 to $150 |
Funding Speed | 2 to 4 weeks |
Audit Protection Provided? | Yes |
Legal Support Provided? | Yes |
Typical Qualifications | |
Minimum Balance To Start a ROBS | $50,000 |
Who It’s for & How to Apply
A ROBS is a way for you to access the funds in your personal retirement accounts tax- and penalty-free. It’s not a loan, so you won’t pay any interest charges that you’d normally have to pay on a loan. However, a ROBS is a complex process that requires navigating through many tax rules and regulations. If done incorrectly, you could find yourself owing fines and penalties to the IRS.
For that reason, we highly recommend using the services of a ROBS provider to help with the initial setup and ongoing maintenance to ensure compliance with tax rules and regulations. ROBS providers often charge a one-time setup fee as well as monthly recurring fees to maintain your ROBS plan.
A main benefit of a ROBS is that it can be much easier to get. Since it’s not a loan, you won’t have to worry about common qualification requirements such as your credit score, business revenue, or time in business. You will, however, need to be structured as a C corporation (C-corp) and have at least $50,000 in eligible retirement accounts for most ROBS providers to consider you eligible. Learn more about how it works and other eligibility criteria in our guide on ROBS.
If you are thinking about doing a ROBS for funding, we recommend Guidant Financial. It made our list of the best ROBS providers largely due to its comprehensive audit protection and legal support services.
Startup Business Loan Considerations
Choosing the right source of funding for your startup is crucial. The right type of loan will allow you to grow your company’s sales without hindering its cash flow. Similarly, choosing the right lender can also impact the level of service you need if you have questions or issues with your loan.
Lender Considerations
The lender you choose can have a large impact on your funding experience. This can include the approval process, as well as your post-funding interactions. Here are some items you may want to think about when selecting a lender:
- Customer reviews: Choosing a lender with consistently high reviews and ratings from other customers is a good sign that you will also have a high chance of experiencing the same type of service. Pay attention to reviews that touch on the lender’s responsiveness to questions and willingness to issue credit policy exceptions.
- Customer service hours: Lenders with long hours of service can be helpful in the event you have questions or concerns about the servicing of your loan account. Consider how important this is to you when choosing a lender.
- Branch locations: If you want the ability to conduct business in person, you should choose a bank that has offices nearby. On the other hand, if this item is not a major concern for you, then online lenders can also be a good option to consider.
- Additional products and services provided: Some banks offer additional services that can help with your daily business operations. Partnering with such a bank can simplify your finances by having multiple products and business needs with a single company.
Loan Considerations
Understanding your business needs and goals is crucial to selecting the right type of business loan. Here are some things we recommend considering before making any final decisions:
- Loan costs: In addition to a loan’s interest rate, consider other one-time and recurring fees that may apply. Some examples include origination fees, minimum draw fees, annual fees, prepayment penalties, and more. Also, consider how your loan payments are expected to impact your business cash flow.
- Down payment requirements: Loans with large down payment requirements can deplete your financial reserves. Smaller down payment requirements, on the other hand, can allow you to retain more funds for investing in other areas of your business or for using funds in the event of an emergency.
- Expected return on investment (ROI): If you’re getting a loan to grow certain areas of your business, consider what your expected ROI will be in relation to the costs associated with getting that loan. If the ROI is not high enough, you may want to consider prioritizing other aspects of your business first.
- Loan default risks: Startups statistically have a high failure rate, so you should consider what will happen in the event you are unable to make loan payments in a timely manner. For example, creditors may be able to take possession of your property depending on the terms of your loan agreement.
Alternatives to Startup Business Loans
Startup business loans aren’t the only options available for funding a newer company. You can get funding from business grants, venture capitalists, angel funding, friends or family, crowdfunding, and more. Check out our recommendations for alternative startup business funding options if you want to explore more ways to fund your business.
Frequently Asked Questions (FAQs)
Yes, getting a startup business loan can be difficult. Startups have a high failure rate—and lenders know this. As a result, many lenders that are willing to consider issuing a loan to a newer company often require a solid business plan, strong personal credit, a large down payment, collateral, or a personal guarantee.
If your business is less than two years old, you’ll be considered a startup by many lenders. Once you have a more established track record of being profitable as a company, you’ll have a much easier time qualifying for business loans.
Startup loans tend to have higher interest rates and fees. This is because lenders see startup loans are riskier, given the high failure rate of newer companies. Startup loans also tend to require collateral or personal guarantees, which can add to a borrower’s cost if they end up defaulting on the loan.
Bottom Line
As a new company with less than two years’ time in business, getting funding can be challenging. Lenders know that startups have a high failure rate, so it can be difficult to find a company willing to take the risk of issuing a loan. Even if you find a willing lender, it will often charge higher rates and fees. With the options listed above, however, you should be able to find a source of funding with reasonable loan terms and rates.