Find the Lowest Rates on Small Business Startup Loans5:23 AM
A small business startup loan is any kind of financing aimed specifically towards startups with litt...
A small business startup loan is any kind of financing aimed specifically towards startups with little to no business history. We offer three different kinds on our marketplace.
The Small Business Administration, private investors, crowdfunders, family, and friends are all tried-and-true options for financing your startup business. Each have their pros and cons, so make sure to explore every possibility! If you’re interested in a more traditional loan to get working capital and grow your business, we have three small business startup loans that can help you get the cash you need. These three products—equipment financing, business credit cards, and the credit line builder—are great options if you have a strong personal credit score and are looking to build up your business credit, too.
How Do Small Business Startup Loans Work?
Just starting up and already feeling lost?
The world of business financing can be confusing—especially for first-time business owners just striking it out on their own.
But not to worry. Fundera’s loan marketplace actually offers three kinds of small business startup loans for you to choose from.
Check them out and see what fits your business best.
1. Startup Equipment Financing
Equipment financing is a small business startup loan that uses the equipment you’re purchasing as collateral.
That lets your lender take a slightly higher risk—by investing in a fresh, untested business—while charging a lower interest rate.
Plus, you’ll be able to pay off the cost of that piece of equipment as it generates revenue for your business.
Applying for Startup Equipment Financing
You’ll also need a great credit score with startup equipment financing: 680 or higher.
And to submit an application for startup equipment financing, you’ll typically need a vendor quote for your equipment, a statement of how you’ll use that equipment, and a detailed credit report.
One bonus benefit: you can use the depreciation of the equipment as a tax benefit for several years!
2. Business Credit Cards
Like a consumer credit card, a business credit card gives you access to “revolving” credit to draw from—as much as you need, whenever you need it, without a hassle.
You’ll be given a maximum amount, an interest rate, and most likely a rewards system you can use to gain points, miles, or cash back in return for your purchases.
Why Use a Business Credit Card?
Business credit cards come with plenty of advantages for small business owners just starting up.
You can separate your personal and business finances to start building up your business credit, make online purchases with ease, and rest easy with a cash flow cushion you’ll have access to in case of emergencies.
Also, your business credit card’s rewards can add a lot of value, often giving you money back for travel, restaurants, gas, office supplies, and a number of other expenses.
The Best Way to Use a Business Credit Card
With that said, it’s important to spend wisely with a business credit card.
Even though a credit card is a convenient small business startup loans option, don’t go overboard on your spending: making late payments or maintaining a high utilization can hurt your credit score.
With these considerations in mind, we’ve rounded up half a dozen of the more proven methods of financing a brand-new business:
SBA loans, and microloans from nonprofits
The U.S. Small Business Administration has a microloan program that offers up to $50,000 for small businesses and some not-for-profit child care centers. The average SBA microloan is about $13,000. Here’s a list of providers.
Friends and family
Perhaps the most common way of financing a new small business is to borrow money from friends or family. Of course, if your credit is bad — and your family and friends know it — you’ll have to persuade them that you’ll be able to pay them back.
In these situations, the potential cost of failure isn’t just financial; it’s personal.
Crowdfunding has become a popular way for small businesses to raise money, thanks to such sites as Kickstarter and Indiegogo, which let you solicit funds through online campaigns. Instead of paying back your donors, you give them gifts, which is why this system is also called rewards crowdfunding.
Like any government program, Small Business Administration (SBA) Loans sound great in theory (let's make sure small business owners can get money) but the execution of the program is a total joke and a waste of everybody's time.
Of the 15 industries reported as getting the most SBA funding in the past decade, only 1 in 200 business owners in those industries managed to borrow a cent from the SBA.
With that being said, if you are one of the lucky few who is likely to qualify for SBA funding, and you have months (yes, months) to spare both waiting for your loan and making a giant business plan to appease an underwriter, these loans are sometimes worth the hassle as the rates are substantially lower than for any other new business loans a small business owner is likely to qualify for.
A Few Things to Keep In Mind
It’s important not to treat the credit line builder like a business line of credit, though.
You’ll need to be careful not to spend too much with any of the business credit cards you use, since late payments and a high utilization across multiple cards can seriously damage your credit score.
Instead, focus on spending sensibly: use the credit line builder like a tool, not a crutch.
Finally, note that the credit line builder requires a personal credit score of over 700 to qualify for.
Not many people are aware of the SBA Microloan program, which provides loans through a network of intermediaries throughout the US. SBA microloans can be used for equipment, furniture, inventory, or working capital. The particulars:
- Loan amounts up to $50,000, but the average loan is around $13,000
- Collateral and personal guarantees are needed, but specific requirements vary by the intermediary
- Rates vary but are generally between 8 and 13 percent
- Repayment depends on analysis of your business, but the maximum term is six years