Business owners often need to utilize more than one source of financing to get their new startup off the ground. Typical options include business loans, raising money, or using your savings. We’ll analyze the 12 best startup business loans, from SBA loans to angel investors to Rollovers for Business Startups (ROBS).
A ROBS might be the best-kept secret in startup funding. It enables you to access your retirement savings to fund your business without early withdrawal penalties and taxes. If you have at least $50,000 in a qualifying retirement account, you can get a free consultation with a ROBS expert by reaching out to Guidant.
Best Startup Business Loans for Small Businesses
|Rollover for Business Startups (ROBS)||Business owners not wanting additional debt and willing to invest $50K+ in retirement funds.|
|Home Equity Loan or Line of Credit||Borrowers willing use home equity (20-30% needed) for startup funding.|
|Business Credit Cards||Business owners good at repaying debt and wanting quick access to funds.|
|Personal Loan||Business owners with good personal credit (600-650+) needing up to $50K in funding.|
|Equipment Financing||Businesses where major startup costs are purchasing equipment with a long useful life.|
|SBA Loan||Businesses with good credit and a solid business plan not needing funds quickly.|
|Microloan||Minority, women, veteran-owned businesses, and others needing up to $50K to start a business.|
|Friends & Family||Borrowers with wealthy friends and family interested in investing in their businesses.|
|Crowdfunding||Startup businesses with a strong brand or dedicated customer following and little-to-no revenue.|
|Angel Investors||Companies requiring funds for rapid growth and willing to take an equity partner.|
|Venture Capital||Borrowers ready to scale their businesses immediately and willing to give up ownership.|
|Government Grants||Small businesses willing to meet the requirements of free US government grants.|
How We Evaluated the Best Startup Business Loans
In evaluating the best small business startup loans, our goal was to provide you with as many options as possible. No two businesses are alike, and so the best startup business financing option for each business also isn’t alike. Understanding your funding options is a great place to start when investigating new business loans.
Some of the factors you should think about when considering a startup business loan are:
- Upfront Cash Required: Your initial outlay of cash is important. If you don’t have much cash, you might want to find an option where you can keep as much cash as possible.
- Long-Term Cost: You need to consider not only the interest rate, but also how much it will cost you in the long term. A loan that’s paid off quickly with a higher rate may cost less in the long term than a loan with a lower rate and a longer term.
- Amount of Equity You Need to Give Up: You should consider if, and how much, equity you might need to give up to get the financing you need.
- If a Personal Guarantee Is Required: It’s important to know if you’ll be required to sign a personal guarantee, which is a promise that you’ll pay if your business cannot.
With these factors along with others in mind, here are the 12 best startup business loan options:
1. Rollover for Business Startups (ROBS)
A Rollover for Business Startups (ROBS) is the best-kept secret in startup financing because it helps you invest funds from your retirement account into your new business without paying early withdrawal penalties or income taxes. A ROBS is not a loan against your retirement account, and it’s not a way of cashing out your retirement account. There are no loan payments and the business takes on no debt.
The typical costs of ROBS are:
- Setup Fees: ~$5,000
- Monthly Monitoring Fees: ~$140
ROBS Terms & Qualifications
A ROBS is a way to use your 401(k) or IRA to fund your business. It helps you invest your current deferred retirement account savings into your new company’s 401(k) plan, which uses the money to buy shares in your business. The business can then use those funds for any business-related expense, which can include startup costs. There are no terms after you get the money because it’s not a loan—it’s an investment.
To qualify for and use a ROBS, you must be:
- Willing to Contribute $50,000+: For a ROBS to make financial sense, you likely need to have at least $50,000 in a deferred retirement account. Further, you need to be willing to use your ROBS to fund your startup business loan.
- Working in the Business: You must be a legitimate employee of the business you’re rolling funds into. There is no set standard for what this means, but a conservative approach is that you work in the business for 1,000 hours annually. That makes a ROBS ideal for actively managed businesses, but not necessarily a good option for people pursuing absentee businesses, like some real estate investment companies.
- Structured as a “C” Corporation: To set up a ROBS, your company must also be structured as a C corporation. The setup costs of $5,000 must come from other means outside of your retirement funds, but the monthly costs can be paid for with any business, including the money you roll over.
Who a ROBS Is Right For
A ROBS is flexible and can be used in conjunction with almost every startup funding option on this list. The funds from a ROBS can even serve as a down payment for a startup business loan or an SBA loan. It’s right for anyone needing financing and willing to contribute $50,000 or more that they currently have in a deferred retirement account. You can learn more by reading our ultimate guide to ROBS Financing.
Where to Find a ROBS
For additional information on Rollover for Business Startups (ROBS) financing, you can get started today by signing up for a free consultation with a ROBS specialist. Our recommended ROBS provider, Guidant, will help you set up your ROBS correctly, and the process typically takes about three weeks.
2. Home Equity Line of Credit (HEL, HELOC)
If you’re a homeowner with some equity in your home, you may be able to get a low-rate home equity loan (HEL) or home equity line of credit (HELOC) to fund your startup. A HEL gives you a lump sum immediately with amortized repayments, while a HELOC is a credit line that can be drawn against as you need funds. With a HELOC, you pay interest only on the balance you currently owe.
Home Equity Line of Credit Costs
The typical costs associated with a HELOC or HEL are:
- Closing Costs: 2% – 5% in closing costs
- Annual Interest Rate: 3% – 6%
HELOC Terms & Qualifications
A HEL gives you a lump sum, which acts like a second mortgage, and a HELOC works like a credit card or business line of credit. In either case, you’ll need to have some equity in your property. Plus, there will likely be a limit on the amount you can borrow, as your lender will want to make sure an equity cushion remains.
The typical requirements for a HELOC or HEL are:
- Equity: At least 20% equity in your home (rule of thumb is between 30% and 40%, minimum)
- Maximum Loan-to-Value (LTV): 80%, based on the appraised value of your home
Who a Home Equity Line of Credit Is Right For
Both a HEL and a HELOC require good credit and sufficient equity (20 percent to 30 percent or more) in your primary residence. A HEL or HELOC can provide your startup business with capital at a lower interest rate than many other kinds of startup financing. However, each will use your home as collateral. This reduces the ways you could collateralize other potential loans in the future
Let’s take a deeper look at who each option might be right for:
Home Equity Loan
A HEL might be right for you if you need a large lump sum amount of money for upfront business expenses that are essential to your operations. You’ll immediately be making payments on the full loan after closing.
Home Equity Line of Credit
If you don’t have an immediate use for all of the funds right away, then a HELOC may save you money through a more affordable interest rate. With a HELOC, similar to a business line of credit, you can draw funds as you need them and you only have to pay interest on your current balance.
Where to Find a Home Equity Line of Credit
If you’re shopping for a home equity loan or line of credit, you can visit an online marketplace, like LendingTree, and review offers from multiple lenders at once. Save time, shop smart, and find a HELOC that fits.
3. Small Business Credit Cards
Both personal and business credit cards can be a relatively cost-effective way of financing your startup. Many come with zero percent APR introductory periods and valuable cashback or rewards programs. This can result in good savings for your business if you use credit cards regularly, and should be a part of every business’ financial toolkit.
Small Business Credit Card Costs
The typical costs of small business credit cards are:
- Average Annual Interest Rate: ~16%+
- Annual Fee: ~$50 – $100
Small Business Credit Card Terms & Qualifications
Small business credit cards aren’t an ideal way to fund large capital investments for your business startup, but they can be an essential tool for cash flow management. You can cover expenses with your small business credit card while waiting for payments from your customers, preserving cash and earning rewards at the same time.
In fact, 31 percent of small businesses use credit cards to finance business operations. Small business credit cards have many benefits for your startup business, including:
- Introductory rates as low as zero percent.
- You only pay interest on the balance you’re carrying at the end of the billing cycle.
- Cashback and rewards programs let you earn extra money for your business just by charging purchases to your card.
- Employee cards that allow you to restrict what the card can be used for (gas, office supplies, etc.) mean more independence for trusted employees, less busy-work approving purchases for you, and more rewards for your business.
With APRs that typically range from 10 percent to 30 percent, credit cards can be a very affordable, short-term solution for small businesses. Their one downside is that they’re particularly sensitive to your credit score, and if your score is damaged, the credit limit can be lowered or closed without warning.
Who Small Business Credit Cards Are Right For
Business credit cards are right for just about everyone and should be a part of every business’ financial toolkit. They’re a great option if you want to manage employee expenses or earn cashback rewards. Business credit cards are also good if your business has little to no revenue or just started, as qualifying is often based on your personal income and credit score.
Where to Find a Small Business Credit Card
Business credit card providers can extend credit based, in part, on personal credit and income. This makes is it a great option for startup businesses. If you’re ready to apply for a business credit card, our guide to the top small business credit cards can help you find the best one for you and your business.
4. Personal Loan from a Peer-to-Peer Site
Peer-to-peer (P2P) lending lets you borrow money through an online service that matches you directly with individuals and institutions. The online technology empowers you to quickly reach lots of debt/income investors you wouldn’t have access to otherwise. Lending Club is the largest P2P site that connects borrowers to investors in a matter of minutes.
Peer-to-Peer Personal Loan Costs
The typical costs of peer-to-peer loans are:
- Origination Fee: ~1% – 6% (taken out of upfront lump sum)
- Interest Rate: ~5% – 26%
Peer-to-Peer Personal Loan Terms & Qualifications
Historically, P2P sites such as Lending Club have focused on providing one- to five-year personal loans for the purposes of paying off credit cards or consolidating debt. However, these personal loans can also be used to start, buy, or operate a business. Recently, P2P lenders have also started to offer small business loans, but these are usually reserved for more established businesses.
To qualify for a P2P loan, there are options based on credit score (check your score for free):
- 650 or Better: Lending Club is a great option for borrowers with good credit scores.
- Less than 650: If your score is less than 650, consider a lender like LoanMe. They offer personal loans up to $50,000. While they have high interest rates, they’ll approve business loans when others won’t. You can get prequalified in minutes with LoanMe by filling out an online application.
Keep in mind that while these loans may be for a business purpose, you’re the one who is borrowing and on the hook for the loan. If you don’t pay the loan back, your credit rating will be affected and you could lose personal assets. The interest rates are similar to credit cards, but you’ll be receiving a lump sum payment that you’ll be paying interest on instead of a credit line.
Who P2P Loans Are Right For
These loans are a good fit for startups or businesses without much history, as long as you’re willing to be personally responsible for repayment. Since this is a personal loan, your personal credit is on the line. So, a P2P loan is also good if you’re willing to put your personal assets at risk (which is often required with business loans through a personal guarantee, anyway).
Where to Find a P2P Loan
You can prequalify online for up to $40,000 with Lending Club within just a few minutes by filling out their simple online application. Once you’ve filled out an application, you’ll receive funding in as little as one week.
5. Equipment Financing
Equipment financing can be used to purchase equipment, vehicles, or machinery. It can be obtained through equipment dealers, banks, and online providers. Equipment financing can help startups finance equipment and preserve their cash for other needs.
Equipment Financing Costs
APR starts at five percent but depends on the type of equipment you’re getting and where you’re borrowing from. For example, equipment dealers might charge you a higher interest rate than banks, but banks might have fees attached to their financing that other lenders don’t have.
Equipment Financing Terms & Qualifications
Equipment financing can be structured as a loan or as an equipment lease. They all work similarly, but mostly differ with how the ownership of the equipment works at the end of the financing term. Here are the three most common methods for these financing options:
With an equipment loan, the purchased equipment is owned by you. The loan allows you to spread out the payments over one to five years.
Fair Market Value (FMV) Leases
This is what most people think of when they think about an equipment lease. You make monthly rental payments in exchange for the use of the equipment. At the end of the lease term, you can purchase the equipment at its fair market value, extend the lease, or return the equipment.
$1 Buyout Leases
Under a $1 buyout lease, you make monthly rental payments to use the equipment. At the end of the lease term, you have the option to purchase the equipment for $1. This is a good lease option if you’re fairly certain you will want to purchase the equipment at the end of the lease.
Under an equipment leasing agreement, you typically get:
- Time to Use the Equipment: 2 – 5 years
- Interest Rates: 6% – 16%
Check out our equipment lease calculator to help you determine which leasing option might be right for your business.
Who Equipment Loans Are Right For
Equipment financing can be a great option for startups where equipment or machinery will play a major role, like a trucking company. Financing equipment rather than paying for it all at once helps you to keep more cash available for other business expenses.
Since equipment financing is collateralized by the equipment itself, it is typically easier for startups to get approved for than unsecured business loans for startups. Whether you’re looking to buy a skid steer or salon chairs, equipment financing might be right for you.
Where to Find an Equipment Loan
Smarter Finance USA can finance your equipment up to $100,000 and structure it as either a loan or a lease. To qualify, you’ll need a credit score of at least 650, no bankruptcies, foreclosures, or repossessions, and at least a 10 percent down payment.
6. SBA Loans for Startup Businesses
The Small Business Administration (SBA) is primarily known for their startup loan programs. Two SBA programs that are more startup-friendly are the Community Advantage Program and the Microloan Program. Both programs target new or underserved businesses. All SBA loan types can be used for startups, but some are difficult to qualify for if you don’t have an existing business.
SBA Startup Business Loan Costs
The typical costs of SBA startup business loans are:
- Annual Interest Rates: ~6% – 9%
- Origination Fees: 0.5% – 3.5%
- Packaging Fees: $2,000 – $4,000
- SBA Guarantee Fees: 3% – 3.5%
SBA Startup Business Loan Terms & Qualifications
Qualifying for SBA loans can be difficult. You’ll need to have a credit score of at least 680 and be able to pledge some collateral for the loan (check your score for free). There are a wide variety of SBA loans available, but the two programs most likely to help provide startup business financing are the Community Advantage program and the Microloan program.
The typical loan terms for the SBA’s Community Advantage program are:
- Loan Amount: Up to $250,000
- Repayment Terms: Up to 10 years for inventory, working capital, or equipment; up to 25 years for commercial real estate
The SBA is not the lender—it just guarantees the loan. The lender is an SBA-approved intermediary, such as a CDC (community development corporation), a bank, or a nonprofit institution. You can read our article on how to apply for an SBA loan to better understand the step by step process.
Who SBA Startup Business Loan Are Right For
Generally, these loans are available to partially self-financed startups (the SBA likes to see that the owner invests at least 30 percent of their own money in the business) and startups where the owners have prior experience in the industry and in management. The primary benefit of an SBA loan is the low interest rate and long repayment term, making your monthly payments lower than they would be with other loan options.
Technically, SBA 7a loans (the most popular SBA loan program) are also available to small business startups. However, they are made by traditional lenders who have very strict qualifications and underwriting standards. We recommend applying with a local lender who knows you and your community the best.
Additionally, as a startup, your SBA lender will expect that you present a well-prepared business plan. We recommend using business plan software, which provides you with great-looking templates, guides you through the process so you don’t miss anything important, and provides you with lots of examples. You can learn more by reading our guide on the types of SBA loans.
Where to Find Startup Financing
Startups will generally be required to have a 20 percent to 30 percent down payment on SBA loans, which can be pretty high for most borrowers. One way people fund the down payment is by using retirement savings through a ROBS. Guidant can help you with ROBS and SBA startup financing.
7. Microloans from a Nonprofit Lender
For startup business owners who don’t have great credit, sufficient collateral, or a lot of other options, a nonprofit lender can be just the resource you need. These lenders have specific criteria they use when looking for borrowers. You will have to find one that matches who you are or what your business is (such as a lender looking for restaurants).
Annual interest rates range from eight percent to 22 percent.
Microloan Terms & Qualifications
Accion is a nationwide nonprofit lender that provides microloans for startups. In most states, you can borrow up to $10,000 for a new startup. Kiva is another nonprofit that will lend up to $10,000 in startup funding.
The typical loan terms for the SBA’s Microloan program are:
- Loan Amount: Up to $50,000 (the highest amount is typically reserved for existing businesses; up to $10,000 for startups is typical)
- Repayment Terms: Up to six years
Microloans are not grants or free money. Accion will only lend to startup business owners who have sufficient cash flow to make loan payments. Accordingly, you should be prepared to show a source of income independent of the business (e.g., a full-time job or spousal income) if your business isn’t generating enough income yet. Having a cosigner with strong income and credit score can also help.
TIP: If your credit score is too low to get traditional business financing (under 640), consider working with a company to repair and build it. You can read our review of the best repair companies here.
Who Microloans Are Right For
Microloans are good for businesses that need very small amounts to start their businesses. This is because with a microloan, you can typically get loans of $10,000 or less to start a new business. Some other lenders don’t offer loan amounts that small, making a microloan a great choice.
Where to Find a Microloan
Startups without great credit or other financing options may qualify for a microloan from a nonprofit organization. You can borrow up to $50,000 from Accion ($10,000 for a startup), with interest rates as low as eight percent. Visit them to see how much you qualify for by filling out a fast online application.
8. Borrow from Friends & Family
Family members and friends who like your business idea may be willing to lend you startup funding via private money. Usually, those loans have very favorable rates and repayment terms, but you have to have access to a network of wealthy individuals. Remember, it’s very important to keep business and personal finances separate. This way, you always have a good paper trail.
Friends & Family Loan Costs
In August 2018, the required minimum interest rates were:
- Short-Term Loans (Less Than Three Years): 1.84%
- Long-Term Loans (Up to Nine years): 2.23%
These rates come from the IRS Index of Applicable Federal Rates, which updates on a monthly basis. This index provides the minimum interest rates the IRS expects on all loans. Even if your friend does not want to receive a return on their money, it is important for you to pay interest on what you receive or the IRS may see the money as a gift and tax you for it.
Friends & Family Loan Terms & Qualifications
Friends and family can be a great source for getting startup funding. While they may want to just give you the money, you won’t want to pay the gift tax on that amount of money. Instead, you can structure it either as a loan or you can sell them shares of your business.
Unless your friends and family are sophisticated investors, taking money as a loan is generally cleaner than selling them a share of the business for three reasons:
- Unwanted Business Advice: Even small equity owners might believe that they have the right to have a major say in the strategy and operations of the business. You may not want to be constantly getting business advice from your uncle.
- Potentially Unrealistic Business Valuations: The founders of a new business tend to place unrealistic valuations on the business. To avoid giving friends and family a “bad” deal, a loan that pays a good interest rate might be the fairest approach.
- Loan Obligations for Owners: Owners of a business may be required to be part of the application for (and guarantee) any future financing.
Who Friends & Family Loans Are Right For
Borrowing from family and friends is right for you if you have a network of high net-worth individuals and are out of other financing options. Be aware, though, that the lack of documentation in these arrangements could lead to reporting and legal problems, and also could stymie your fundraising efforts (it just doesn’t look professional).
Where to Find Family & Friend Loans
If you’re going to go the family and friends route, then make sure you document every cash investment or loan. It’s also critical to keep your personal and business finances separate so you have a good paper trail and can answer any questions about how you used the funds. You can learn more by reading our guide about raising money from your friends and family.
Crowdfunding is the act of raising small amounts of money from a large number of people. Crowdfunding investments are usually handled through an online platform. Entrepreneurs looking to crowdfund capital for their business generally give equity or some type of reward in exchange for the funds.
A flat fee of five percent to ten percent of the total money raised, plus the costs of offered incentives/rewards (gifts, share of business, etc.).
Crowdfunding Terms & Qualifications
There are many different ways to crowdfund. Some startups just rely on the strength of their business or campaign, believing that their product will inspire contributors. Others offer rewards or incentives to supporters in exchange for their investments, and a few offer equity in their business. Campaigns are almost always done through some kind of crowdfunding website.
The reward-based crowdfunding strategy is very popular on Kickstarter. It works by offering a product or service as a reward to people who give a certain amount of dollars to your business. The funds must be for a specific purpose (like manufacturing a new product) and that purpose must be offered at the beginning of the campaign.
Josephine Caminos Oria, President & Founder of La Dorita Cooks, provided a success story and noted the importance of considering your community when seeking startup funding:
“We …used grass-roots fundraising efforts through Kickstarter.com to raise $50,000, of which $32,500 was used to equip our current commercial kitchen. … We always encourage our member startup companies to reach beyond their brick-and-mortar and find a way to make a social impact and give back to their community in order to create creative funding opportunities for their business.”
Equity-based crowdfunding is relatively new in many ways, and online platforms are still being established. This is still pretty rare, but it’s an opportunity that is becoming easier to do as laws and regulations have loosened a little bit. There are three types of equity financing:
- Equity I: This option must be done privately through accredited investors. Entrepreneurs using this type of crowdfunding get access to the fewest number of potential investors but also have to deal with the least amount of legal regulations.
- Equity II: This option allows you to publicly advertise your crowdfund opportunity, but you can still only accept money from accredited investors.
- Equity III: This option allows you to publicly advertise your crowdfunding needs and goals, and you can accept funds from just about anyone. This option is heavily regulated by the SEC to protect the interests of inexperienced investors.
Being able to reach just about anyone through an equity crowdfunding campaign requires you to abide by many laws and regulations. This is because many of the investors looking to work with you will be inexperienced investors, and the laws are in place to protect their interests.
Who Crowdfunding Is Right For
Reward-based crowdfunding might be for you if you don’t have any revenue and are just looking to launch your product for the first time. It’s also a good option for high-margin products or services. Many entrepreneurs use this type of crowdfunding to initiate presales of new products and to gain exposure.
Equity-based crowdfunding can be good for any business willing to give up equity to receive the capital they need to grow quickly. This form of crowdfunding is still very new and hasn’t been as widely accepted as reward-based crowdfunding yet.
Where to Find Crowdfunding
There are several types of crowdfunding sites. Some are rewards-based and others are equity-based. To learn more about crowdfunding and which site to raise money on, read our best crowdfunding site guide.
10. Angel Investors
Angel investors are usually wealthy individuals who give your business money—debt-free—in exchange for an ownership stake. An angel investor invests as much in you—the business owner—as they do in the business’ products or growth opportunity. Angel investors generally give less money than VCs (discussed below), but they also are less likely to take an active role in your business.
Angel Investors Financing Cost
A percentage of the ownership of your business, to be negotiated between you and the investor. You can expect to give up between five percent and 50 percent of your equity. Some angel investors will only invest capital if they get a majority ownership stake, but they will still fully expect you to operate the business.
Angel Investors vs. Venture Capitalists
Angel investors are individuals who are generally wealthy and like to invest in early-stage startups, generally contributing between $25,000 and $1,000,000 per investment. Here are the major differences between angel investors and VCs:
- Angel investors are generally not looking for as great of a rate of return on their investment as venture capitalists.
- Many of them like to help advise business operations, but generally do not take control of making decisions.
- Angel investors are typically looking to invest less than $1,000,000.
Tips for Raising Money from Angel Investors
The best thing to keep in mind about raising money from angel investors is that it’s all about networking. You have to get yourself and your business in front of individuals who have the money and interest to invest.
If possible, structure the investment as a convertible note. A convertible note is a loan that pays interest, but converts into stock under certain conditions, like if venture capitalists invest in the company later. There are two big benefits of a convertible note:
- They are simpler and therefore require less in legal fees than a typical equity investment.
- They eliminate the need to decide on how much the company is worth with the angel investor (that will be determined by the valuation of the next investment in the company).
Who Angel Investors Are Right For
If you need a lot of capital to grow your business and are willing to give up equity to get that capital, then angel investments might be for you. If you’re thinking about going down this path, you can learn more by reading our guide on raising capital from angel investors.
Where to Find Angel Investors
In many cases, angel investors are people you know who are just as much about investing in you as investing in your idea. However, if you do not have friends with deep pockets, you can also advertise your business on angel investing sites such as AngelList.
11. Venture Capital
Venture capitalists are generally a group of investors that make up a company or investment firm. VCs give you money debt-free in exchange for a percentage of equity in the business, but they are also likely to take a more hands-on role in your business. A well-prepared business plan with financial projections is a must when pitching to a venture capital firm.
Venture Capital Cost
You must give up a percentage of the ownership of your business, which typically is a non-negotiated offer from the VC firm. Many VC firms will want significant ownership of your business. You can expect to give up at least 10 percent to 30 percent of your business from non-controlling VC investors.
Venture Capital Terms & Qualifications
Venture capitalists are basically investors who are looking for a very high rate of return on their money, generally around 10 to 15 times initial investment within a five-year period. Most new businesses cannot guarantee such a high rate of return, which is why they are often not a good match for venture capital funding.
VC firms generally have other investors who give them money to invest into these startup businesses. Because VCs must answer to their own investors, they are more likely to take an active management role in your business. This ensures they can help steer the ship, maximizing the opportunity for a quick return on their investment.
Who Venture Capital Is Right For
Like angel investing, you need to be ready to give up equity and have the ability to scale your business quickly if you want to find venture capital investors. VCs are looking for businesses ready to become a large business worth substantially more than they are today, and you need to have something that makes you stand out in your industry.
Where to Find Venture Capital
Raising venture capital is a tough endeavor and isn’t right for all companies. But if you’re considering this route for raising money, read our guide on how to raise venture capital funding. We’ll tell you everything you need to know about how to raise venture capital funding.
12. Government Grants
While not a loan, a government grant is another funding option you should consider. Many small businesses might be eligible for government grants. It’s worth checking out if there are any grants that align with your business type when considering your startup funding options.
Government Grant Costs
Government grants are free, and you’ll never be solicited by the government to tell you that you’ve qualified for a grant for which you haven’t applied. Don’t be fooled by scams trying to convince you that you need to pay to receive a grant.
Government Grant Terms & Qualifications
The terms and qualifications for government grants are all different. When you review the grants to see if they align with your business, you’ll be able to tell what’s required to get the grant. Some examples might be the type of business ownership (e.g., minority-owned), the population you’re serving (e.g., an underserved area), or the service you provide (e.g., environmental).
Who Government Grants Are Right For
Many different small businesses might be eligible for government grants, and so they’re right for anyone who meets the requirements of the specific grant. While there may be steps you need to take to keep or receive the grant (e.g., promise to provide a service for a set amount of time), who doesn’t want free money?
Where to Find Government Grants
The U.S. government has a specific site where government grants are listed. On this site, you’ll be provided with all the details about the available grants and what it takes to apply. It’s certainly worth checking out if there are any grants that align with your business type and objectives when considering your startup funding options.
How to Get a Startup Business Loan
Startup loans can be for both brand-new businesses looking for their first sale and for business owners looking to buy an existing company. Money for existing businesses is much easier to get than money to launch brand-new business ideas.
If you’re looking to start a new business without any sales, here are three tips to find the money you need:
1. Prepare a Solid Business Plan
No matter how you raise or borrow money for a startup, a solid business plan is a must. Any potential lender is going to want to see that you have your arms around the business and understand how to operate it successfully. Plus, they’ll want to make sure the financial projections are believable and show plenty of opportunities to repay the loan.
2. Improve Your Personal Credit Score
Any new small business loan will likely require you to have a strong personal credit score. The lender won’t be able to use business history or credit to determine the potential success of the business. Instead, they’ll look at your personal credit history and what personal assets you have that can be used as collateral.
3. Save Your Own Capital
New small business loans are going to be virtually impossible to get if you’re not investing in the business. Any lender is going to expect you to pay 10 percent to 30 percent of the costs to start up the business to go with the loan they’re giving you. They want to know you have skin in the game and that you’re going to do everything you can to make this business a success.
Startup Business Loans Frequently Asked Questions (FAQs)
In this article, we’ve provided a lot options for how to get a startup business loan. However, as with any type of financing, some questions are asked more frequently than others, and we’ve tried to address those here. If we haven’t answered your question, feel free to share it with us in our forum and we’ll provide an answer.
Here are some of the most frequently asked questions about small business startup loans:
How Do I Get a Startup Business Loan?
If you’re not sure how to go about getting a startup business loan, a great way to start is with our fundable quiz. This quiz will help you determine if your business is fundable, how much in funds you might be able to receive, and the best startup funding options for you.
How Do I Create the Business Plan Required for SBA Startup Loans?
Developing a business plan is always a good idea, especially for startup businesses. If you’re seeking an SBA startup loan, you’ll need a business plan. You can develop a business plan yourself in nine steps. We recommend using business plan software to do this. Lastly, you can get free help from organizations like SCORE.
Do Banks Give Loans to Start a Business?
When considering how to get a loan to start a business, getting a startup loan from a traditional bank will be difficult. If you want to use a traditional bank, a HELOC on your home is an option if you have good credit and equity. Other alternatives to bank financing include crowdfunding and SBA microloans.
Do You Need a Loan to Start a Business?
You don’t necessarily need to rely on loans to start a business. In fact, a survey of small business financing found that 31 percent of small businesses didn’t use any loans to meet their capital needs in a 12-month period. When starting a business, it’s good to use your own resources before getting a startup loan.
Are There Free Government Grants as Funding for Business Startup?
Government grants are free, and you’ll never be solicited by the government to tell you that you’re qualified for a grant for which you haven’t applied. Small businesses might be eligible for government grants. It’s worth checking out if there are any grants that align with your business type when considering your startup funding options.
Bottom Line: Startup Business Loans
Finding financing when you’re starting a business can be difficult, but the twelve options we’ve discussed above should work for most small businesses. If you’re looking to get financing to purchase an existing business or to fund a franchise, startup business loans might not be your only option.
The best-kept secret in startup financing is a ROBS. If you have $50,000 or more in your retirement account, it is the fastest way to fund your startup (funding in about three weeks). You won’t have to pay any early withdrawal penalties or taxes on the money you rollover. You can request a free consultation with Guidant today to get started.