Getting funding as a startup business can be difficult, largely because lenders are aware of the high failure rate of newer companies. As a result, many will not offer funding unless you have a track record of two or more years of performing well. Even if you can find a lender willing to offer funding to startups, you’ll often have to accept high rates and fees, something that can make it even more challenging for your business to succeed.
If you want to see the types of startup funding sources available for your business, we’ve listed some of the best options you can consider below.
| 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 who have 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 |
| Crowdfunding Sites | Businesses seeking to avoid taking out a loan by raising funds from the public instead |
| Rollover for Business Startups (ROBS) | Business owners wanting tax- and penalty-free access to their personal retirement accounts |
- 1. Personal Loan for Business Purposes
- 2. HELOAN or HELOC
- 3. Equipment Financing
- 4. Business Credit Cards
- 5. SBA Loans
- 6. Crowdfunding Sites
- 7. Rollover for Business Startups (ROBS)
- Startup Business Loan & Lender Considerations
- Alternatives to Startup Business Loans
- Frequently Asked Questions (FAQs)
- Bottom Line
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. HELOAN or HELOC
| 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.
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 with 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.
- An equipment loan allows you to purchase the equipment and gain full ownership of it once the loan balance is paid.
- 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.
If you’re considering either an equipment loan or a 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 from new cardmembers
- Purchase protections, 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 American Express Blue Business Cash™ Card.
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.
- 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.
- 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, and office buildings.
- SBA microloans: This 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.
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. Crowdfunding Sites
| Typical Rates & Terms | |
|---|---|
| Platform Fees | Up to 5% |
| Transaction Fees | 2% to 3% + $0.30 |
| Payment Processing Fees | Up to 1% |
| Campaign Time Limit | 60 to 90+ days |
| Funding Amount | Varies |
| Typical Qualifications | |
| Credit Score | Varies |
| Time in Business | Varies |
| Annual Revenue | Varies |
Who It’s for & How to Apply
Crowdfunding is a way to get funding from the general public. Because of this, it can be an excellent option for companies with a large following or social media presence.
As a business owner, crowdfunding can give you the flexibility of choosing how you want to reward your investors. For example, you may offer discounts, equity ownership in the company, and other perks upon the release of the product. Crowdfunding can also be a good option for business owners who need funding but are either unable to get a loan or do not want to worry about repaying the loan proceeds. To learn more, check out our step-by-step guide on how to crowdfund a business.
Crowdfunding sites are often used as a platform by which companies can advertise the product or service they need assistance with. Individuals can then invest funds in the products or services they choose. One example of a crowdfunding platform is Indiegogo, which tops our list of the best crowdfunding sites because of its inclusivity in a wide range of industries.
7. Rollover for Business Startups (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 and have at least $50,000 in eligible retirement accounts for most ROBS providers to consider you eligible.
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 & Lender 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.
Loan Considerations
Before you take out any type of loan, it’s important to consider its impact on your company’s finances. We recommend considering the list of items below before making any final decisions:
- Fixed vs variable rate loan: Variable rate loans may carry lower interest rates at first. Depending on the terms of your loan, however, the rates could be increased after a certain period. If that happens, consider the impact on your company’s cash flow and long-term affordability.
- Repayment term: Longer repayment terms can provide lower monthly payments. The tradeoff here is that you may pay more interest charges in the long run.
- Repayment frequency: This is how often you are required to make payments on a loan and is something that can impact your company’s cash flow. Loans requiring weekly or daily repayments, for instance, can make it difficult for a business to pay on time if income is received on a less frequent basis.
- Minimum payment amount: To avoid damaging your credit, incurring late charges, or other penalties, we recommend you ensure you can afford to make the minimum payment amounts. Additionally, it’s a good idea to have reserves to cover emergencies or other unexpected circumstances that could negatively impact your ability to repay business debts.
- Personal guarantee or collateral requirements: Some lenders may require a personal guarantee or collateral to be pledged as a condition of a loan approval. This can allow them to seize your personal assets in the event your business defaults on business debt. This is a possibility you should consider before you accept the terms of 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.
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, 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)
How quickly can I get funds as a startup from a small business loan?
In general, it can take one to two weeks. Lenders that specialize in issuing fast business loans can provide funding in as little as one to three days, but rates and fees will be noticeably higher than most other conventional loan programs.
Are business loans the only way to get funding as a startup?
No. A ROBS is one example of a way to get startup funding without taking out a loan from a lender, and it gives you tax- and penalty-free access to your own retirement savings. You can also consider personal loans, including HELOANs.
Is it hard to get approved for a small business loan as a startup?
Yes. Due to the high failure rate of startups, it’s typically much more difficult to get approved as a newer company with less than two years of history.
Are startup business loans expensive?
Startup business loans tend to be more expensive than most other financing options. Without an established track record of performing well financially, lenders will typically charge higher rates and fees to account for the increased likelihood of default.
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.
