crowds in a building

Startup Business Loans: What are Your Options?

Share it on these platforms

Business startups require substantial capital, which most new business owners don’t have access to. About $30,000 is the average amount of money required to start a business, with microbusinesses starting at only $3,000, according to the U.S. Small Business Administration (SBA). This is where a startup business loan comes in. By taking out a loan, you can get the money you need to get your business off the ground.

But many startup business owners are unaware of the many funding options available. You may be eligible for various startup loans, depending on your business model and creditworthiness. Because of this, it’s essential to research your options before getting a business loan. You don’t want to get stuck with one that doesn’t fit your needs.

What are the Business Loan Options for Startups?

business people shaking hands

1. Traditional Bank Loans

If you have a strong credit history and your business is well-established, you may be able to qualify for a traditional bank loan. These traditional business loans are typically more challenging to qualify for than other types, but they offer competitive interest rates and terms. These are best for businesses that have been in operation for at least two years and have a strong track record of profitability.

However, a traditional business loan can be challenging to obtain from your bank or credit union, and you may need to provide collateral. There are also strict eligibility requirements, such as minimum business and revenue time. Startups may not qualify for this loan, so exploring other options is essential.

2. SBA Loans

The Small Business Administration (SBA) is a government agency that provides financial assistance to small businesses. One of the most popular programs is the SBA 7(a) loan program, which offers loans of up to $5 million. These loans can be used for various purposes, such as working capital, equipment or real estate.

Your business must meet specific requirements, such as being for-profit and having a physical location in the United States, to qualify for SBA loans. You’ll also need to start building good business credit and writing a solid business plan. The SBA doesn’t lend money directly to businesses; instead, they work with participating lenders, such as online lenders, banks and credit unions. This makes it easier for small businesses to qualify for business financing.

3. Business Credit Cards

A business credit card is another option for financing your startup. These cards offer a line of credit that you can use for various business expenses. Many business credit cards offer rewards, such as cashback or points, which you can use for travel or purchases. They also come with a 0 percent introductory APR, saving small business owners money on interest payments.

Business credit cards are generally easier to obtain than business loans. But you’ll need solid personal credit scores and demonstrate that your business has a steady income. Many business credit cards also have high interest rates, so paying off your balance in full each month is essential.

4. Microloans

Startup businesses may also be eligible for microloans. These small business loans, typically less than $50,000, can be used for various purposes. Microloans are typically easier to qualify for than other types of loans because they’re designed for small businesses. But they generally have higher interest rates and shorter repayment terms.

The SBA and various nonprofit organizations offer microloans. Your business must meet specific requirements to qualify, such as being for-profit and having fewer than 500 employees. You’ll also need to have a solid business plan and demonstrate that you can repay the loan.

5. Crowdfunding

Most loans require you to repay the borrowed amount with interest, but some alternatives don’t. Crowdfunding is one example. With crowdfunding, businesses raise money by soliciting donations from the general public. Companies can use various crowdfunding platforms, such as Kickstarter and Indiegogo, to solicit funds.

Crowdfunding can be a great way to finance your startup if you don’t have a strong credit score or collateral. And since you’re not borrowing money, you don’t have to worry about repaying a loan. However, raising the funds you need can be difficult, and there’s no guarantee that you’ll be successful in developing a startup.

6. Merchant cash advances

Business loans aren’t the only way to get funding for your startup. Merchant cash advances (MCAs) are another option. With an MCA, businesses receive an advance on their future sales. The amount of the advance is based on the businesses’ monthly credit card sales. MCAs are repaid through a percentage of the businesses’ future sales, which makes them easier to repay than traditional loans.

MCAs can be a good startup business loan for companies with a lot of credit card sales. But they often come with high interest rates and monthly fees, so be sure to compare offers from multiple providers before deciding.

7. Friends and Family

Another business startup loan option is borrowing money from friends and family. This can be a great option because you may not have to provide collateral or pay interest. But it’s important to remember that borrowing money from loved ones can be risky. If you cannot repay the loan, it could damage your relationship.

Before borrowing money from friends or family, be sure to draw up a contract that outlines the terms of the loan. This will help protect both you and your loved ones in case things go wrong. Additionally, avoid asking your friends or family to get personal loans to finance your business. This could put them in a difficult financial situation if you are unable to repay the loan.

8. Grants

Startup businesses may also be eligible for grants. These are funds that you don’t have to repay. Grants can be used for various purposes, such as research and development or marketing. Specific grants may have eligibility requirements, such as being a woman-owned business or operating within a particular industry.

The government offers many different types of grants. The Small Business Administration (SBA) is an excellent place to start your search. You can also check out, a database of over 1,000 federal grant programs.

Should You Get a Business Loan?

man signing papers
Photo by Scott Graham on Unsplash

There’s no easy answer to this question. It depends on your individual circumstances and the type of loan you’re considering. A startup business loan can be a great way to finance your startup, but they also come with risks, such as the possibility of defaulting on the loan and getting a lower credit score.

Before taking out a startup loan, be sure to do your research and understand the terms. This will help you make the best decision for your business.

How Much Loan Should You Get?

The amount of loan you should get depends on your needs as a business owner. You’ll need to consider how much money you need to borrow and the terms of the loan. Use this information to create a budget for your business and manage your finances better. This will help you avoid taking out more money than you can afford to repay.

Startup business loans can be a great way to finance your business. But it’s essential to understand the risks before taking out a loan. Be sure to do your research and compare loan options. This will help you find the best loan for your business. With the right loan, you can get your business off the ground and on its way to success.

Scroll to Top