What Is a Startup Business Loan?
A startup business loan encompasses any type of financing aimed specifically toward startups with little to no business history. Although it may not be as easy to access funding as a new business, there are still a variety of business loans and financing methods available to startups, including—SBA microloans, asset-based loans, business credit cards, and more.
How Does a Startup Business Loan Work?
When you’re looking for small business loans as a startup, you might be unsure of how the process of acquiring financing works. If you’re searching for business financing for the first time, this is completely understandable—plus, things are all the more confusing because there isn’t a single type of financing that qualifies as a “startup business loan.”
As we mentioned above, a startup business loan can refer to any type of financing that’s designed to accommodate newer businesses.
Therefore, you might access a startup business loan that functions as traditional debt financing—where you receive capital and pay it back over time with interest. On the other hand, you might find that equity financing is better suited for your startup—in this case, you’ll receive funding in exchange for shares or stock in your business.
In any case, although business startup loans can work differently based on the specific product and lender—the most important thing is that the loan works for your business. The right financing product for another startup might not necessarily be what’s right for your startup—so you’ll want to make sure that whatever type of startup business loan you choose is one that can meet your unique funding needs, and of course, is one that you can afford.
All of this being said, let’s take a look at some of the top options for startup business loans, summarized below:
|Type of Financing||Best For||Where to Get It||More Information|
|SBA Microloans||Affordable, traditionally structured loans; qualified business owners||Local SBA microlenders||Learn more about the SBA Microloan program.|
|Asset-based financing||Specific financing needs—receiving capital for outstanding invoices or purchasing equipment||Invoice financing: BlueVine, Fundbox
Equipment financing: Crest Capital, Balboa Capital
|Learn more about asset-based lending.|
|Business credit cards||Fast access to a line of credit; startups with less than six months in business||Chase, American Express, Capital One||Compare the best business credit cards for startups.|
|Personal loans for business||Very new startups; business owners with great personal finances and credit history||Rocket Loans, local or national banks that you already have a relationship with||Find out more about when it’s worth using a personal loan for business.|
|Small business grants||Access to capital that you don’t have to pay back; startups in specific industries or communities||Government programs, like SBIR or STTR; corporate organizations like FedEx and Visa||Explore the different options for small business grants|
|Friends and family||Flexible and fast funding; business owners who have a network willing to invest||Friends and family within your network||Find tips for raising money through friends and family.|
|Crowdfunding||Small amounts of capital; testing a product or creative idea||Crowdfunding platforms like Kickstarter or Indiegogo||Learn more about how crowdfunding works.|
With this overview in mind, let’s break down these small business loans for startups in more detail:
How to Qualify for Startup Business Loans
Overall, because there is no single option for small business startup loans, it’s difficult to detail specifically how you can qualify for financing as a startup.
Ultimately, the business loan requirements you’ll need to meet will depend largely on the particular product you’re interested in, as well as the lender, financial institution, or investor you’re working with.
This being said, however, there are some general tips you can keep in mind when trying to qualify for business startup loans.
First and foremost, if you’re looking for more traditional types of financing, you’ll want to make sure the lender works with younger businesses. Generally, it’s harder for businesses with less than six months in operation to find traditional loans. In this case, you may turn to one of the alternative options we’ve discussed—like a business credit card or grant.
Or, if you can offer collateral to secure your financing, like with invoice or equipment financing, you might find that a lender is more likely to work with your business, regardless of how long you’ve been operating.
On the other hand, if your business is older than six months, you should be able to find a lender, like a microlender, that will work with your startup.
In addition, another of the most important things to consider when trying to qualify for a startup business loan is your personal credit score.
Almost any lender will look at your personal credit score when you apply for financing—the higher your score, the better your changes are for qualifying for a loan—and one with the best terms and rates.
Of course, this isn’t to say that there aren’t business loans for bad credit—however, as a startup, it may be even more difficult to access those types of products.
Therefore, if you need to work on improving your credit, you may again decide to turn to more creative funding methods to finance your business in the meantime.