If you’re just starting a business, it can be difficult to find funding. Banks, while offering some of the best terms, will usually require that businesses be at least two years old to receive funding. Even many online lenders require a business to be at least one year old. We took a look at over 30 different lenders and loan programs to compile a list of the best small business startup loans.
Best Small Business Startup Loans for Good Credit (and Women): SBA Community Advantage Loans
If you’re a female entrepreneur or have a good credit score, the SBA Community Advantage (CA) loan is a fantastic option as it offers very competitive rates and terms for startups. SBA loans are also three to five times more likely to go to women-owned businesses, and CA loans are specifically designed for underserved and new businesses. CA loans are offered through an intermediary lender and guaranteed by the SBA for up to 85% of the loan value. To qualify, you must prove your creditworthiness and the viability of your business idea (the size of your business’s collateral and balance sheet are not significant considerations). The application process for CA loans has been streamlined to a two-page application and most loans are approved within five to 10 days. Borrowers who are approved will also have access to management and technical assistance, such as business plan preparation and accounting services.
- 9.75% interest rate (may be lower)
- Terms up to 10-25 years
- Funds in one to two weeks
- Loans up to $250,000
- Stricter eligibility requirements
Best Small Business Startup Loans for Bad Credit: Accion
If you have a poor to fair credit score, Accion is a great place to get startup funding for your business. Accion only requires a minimum credit score of 575 to qualify for startup loans ranging from $1,000 to $10,000 (other requirements such as having sufficient cash flow or being based at home or in an incubator will apply). If you’ve been in business longer than six months, you may be able to qualify for a larger loan up to $50,000. Interest rates start at 8.99% to 10.99% with loan terms from six to 60 months. Another benefit of using Accion is that the lender offers a variety of resources and workshops for entrepreneurs and will give you advice on how to improve your application if you are rejected.
- 8.99% - 10.99%+
- Terms from 6 to 60 months
- Funds in severals weeks
- Loans up to $50,000
- Lenient eligibility requirements
Best Unsecured Small Business Startup Loans: Business Credit Cards
If you don’t want to put up collateral to get a loan, small business credit cards are a good source of startup funding, as you’ll be able to build your personal credit and get rewards for purchases. Besides allowing you access to flexible funding, the best business credit cards offer starting bonuses and other incentives, like cash back, points or miles on purchases. If you pay your balance in full each month, you also won’t need to worry about interest. To qualify, you’ll need a good to excellent personal credit score (usually anything above 680). If you don’t have a great credit score, there are a few secured business credit cards available, but they don’t offer the same level of perks as the regular cards and their credit limits are typically lower too.
- 13% - 20% APRs
- Earn cashback or other rewards
- May offer sign-up bonuses or 0% introductory APR
- Add employees as authorized users
Best Small Business Startup Grants: Government Business Grants
Both the federal and state governments offer some of the best grants (and loans) available to small businesses. Grants may include business or management assistance in addition to or in place of monetary assistance. Government grants may be given to businesses that are in a particular industry, are owned by a type of individual (e.g., veteran, woman or minority) or meet some other criteria.
Missouri, for instance, offers an Action Fund Loan for new or expanding businesses that have exhausted other funding sources. New York also offers loans and grants to companies that commit significant capital to the state and to the creation and retention of private sector jobs. The Council of State Governments has a search tool that shows business grants and loans for each state. Another great place to look for both state and federal financing is BusinessUSA. In addition, some states may also offer special tax credits and exemptions for small businesses that can help you save money.
- Variety of grant programs available
- Grants available from state and federal government
- Programs available for special groups (women, minorities, veterans, etc.)
- Competitive application process
Other Startup Funding Options to Consider
Besides the startup loans and grants above, there are other ways to get funding for your new business. We’ve listed a few additional options below.
SBA and Nonprofit Microloans
Microloans can be a great source of startup financing if you need less than $50,000. The SBA offers a microloan program to new and existing businesses that allows you to borrow up to $50,000 for six years. You’ll typically need a good to excellent credit score to qualify. If you can’t qualify, you should consider a microloan from a nonprofit, such as Kiva. Kiva provides interest-free loans up to $10,000 to new or existing businesses. No credit score is required for a Kiva loan, but you’ll need to submit a personal story and pitch to be considered.
Crowdfunding sites help entrepreneurs raise money/donations for specific projects or products. Rewards crowdfunding sites are best for products and creative endeavors as entrepreneurs are required to offer rewards to donors who back their project. These rewards are usually a copy of the item being produced or an experience with the entrepreneur. Two of the most popular rewards crowdfunding sites are Kickstarter and Indiegogo.
Banks and Credit Unions
It can be difficult to get funding for a new business from a bank or credit union. However, you may be able to circumvent this if you have an existing relationship at a bank or credit union (e.g., mortgage, auto loan, credit card, previous business loan). You’ll also need a solid business plan showing the viability of your idea and a good to excellent credit score to be eligible to receive funding.
Rollover as Business Startup (ROBS)
A ROBS lets a business owner use money from her 401(k) account without paying early withdrawal penalties or taxes on the money to start or purchase a business. A ROBS is not a loan, so there are no interest payments or impact to your credit score. Setting up a ROBS can be complicated, so many business owners use a third party company for the creation and administration. Business owners who use a ROBS plan may have an increased chance of being audited by the IRS.
Personal loans can be a suitable option for new business owners who have exhausted other avenues or need smaller amounts. Personal loans don’t typically require collateral and may offer lower APRs (especially if you have a good credit score). However, personal loans will affect your personal credit history if you default or make late payments. You can get a personal loan from a bank or an alternative lender.
Loans from Family and Friends
If you are particularly hard-strapped for financing, you may consider turning to family and friends for help. But you can risk your personal relationships if you are unable to repay borrowed money. If you decide to get a loan from family or friends, it’s a good idea to have a third party administer the loan to avoid any issues down the road.
Summary of Best Small Business Startup Loans
In the table below, we summarize for quick comparison the top startup financing picks based on which ones suit specific types of businesses.
|Women and borrowers with good credit scores||SBA Community Advantage Loan||9.75%|
|Borrowers with bad credit scores||Accion||10.99%+|
|Unsecured startup funds||Business credit cards||13% - 20%|
|Startup grants||Government-backed grants||N/A|
|Small loan amounts||SBA, nonprofit microloans||8% - 13%|
|Products and creative projects||Crowdfunding||N/A|
|Borrowers with an existing banking relationship||Banks, credit unions||Vary|
|Using retirement funds to start a business||Rollover as Business Startup (ROBS)||N/A|
|Borrowers who have exhausted other funds||Personal loans||5% - 35%|
|Borrowers who don't want to take out a loan||Loans from family and friends||N/A|