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Small Business Startup Loans of 2018: The 8 Best Options

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Of all the things starting a business demands, money and funding could be the most difficult to find. You might instinctively turn to equity financing, given how synonymous venture capital and startups have become. Or you could turn instead to banks and credit unions for small-business loans. However, you'll find that both equity and debt financing come with their own pros and cons. No solution is perfect, and different products are designed for different needs. It's up to you to decide what route is best for your business, so to help make your life easier and save you some time, we've compiled a list of the best startup loans in the market.

Where to Find a Loan for Your Startup

One of the first decisions to make when you look for external financing for your business is to decide between equity and debt financing. Now let's assume you've decided you don't really like the thought of handing out ownership of your company and you're comfortable with the thought of paying fees on top of loans provided you come out with a net positive.

Welcome to the world of debt financing. It can be complex if you try to navigate it on your own, and we know that you'd rather not spend the time to figure all of that out. After all, you've got a business to run. There are dozens of types of loans and lenders in the market, and each will claim that they're the best for you. To help filter out what you should pay attention to, we've narrowed down the best options for your startup. Again, we will echo that loans are not one-size-fits-all. There isn't a single loan that is going to be the overall best for startups. Each will be great for some businesses and weak for others. We've narrowed down the best loans for the common needs that startups tend to have.

Term Loans

If you think of a loan as receiving a lump sum of cash that is repaid with an interest fee on top, that is a term loan. These are the most common forms of loans in small-business financing. We recommend term loans for large purchases where you know exactly how much you'll need and it'd be to your benefit to spread the payment over a period of time. We don't recommend term loans if you're just looking to have working capital at the side since you need to start paying interest fees as soon as the loan becomes active.

Small Business Administration Community Advantage Loan

As far as term loans for startups go, we recommend the Small Business Administration (SBA) Community Advantage (CA) Loan. The SBA is a government organization that offers small business loans through various lenders. SBA loans are the most competitive loans with the lowest rates because the government will typically guarantee portions of every SBA loan, reducing the risk for lenders and interest rates that lenders charge.

We recommend CA loans for startups specifically because they're designed for underserved or new businesses. The SBA guarantees 85% of the loan, which is extremely high even for an SBA loan, which means the interest rates lenders are going to charge will be very, very low since so much of the loan is secured by the SBA. The downside is that the application process and funding can take comparatively longer than other loans, five to 10 business days, but if you can afford to wait, you'll be rewarded with one of the cheapest loans on the market.

Business Lines of Credit

Business lines of credit are great for startups looking for both flexibility and sizable loans. Think of them as beefed-up credit cards. They operate very similarly to credit cards in that they're revolving lines of credit but they tend to have much larger credit limits.

Kabbage

Kabbage offers some of the most lenient requirements, which makes it ideal for startups that might not have the strongest financial profiles. Of course, those lenient requirements translate to increased risk for the lender, and that is definitely reflected in their high cost-per-dollar borrowed. Cost per dollar: $1.20 - $1.80.

Business Credit Cards

Business credit cards are nearly identical to personal credits. They're fluid, you don't need to put any collateral down and they're also revolving. They sound perfect for businesses, but we only recommend businesses use business credit cards for small, everyday purchases. Business credit cards often come with low credit limits and high APRs, which means you don't want to be carrying a balance month to month.

Ink Business Cash℠ Credit Card

We recommend the Ink Business Cash℠ Credit Card because it's one of the few small-business credit cards to give users 0% financing. Cardholders get a 0% introductory APR for 12 months on purchases and balance transfers. We've reviewed more than 45 different business credit cards from the nation's largest banks and credit unions. Over 90% of those cards had high interest rates, which makes this the obvious choice for most.

Moreover, the Ink Business Cash℠ Credit Card comes with a rewards program, which means you'll get extra cash back in your pocket for everyday expenses. While 1%-5% might not sound like much, over time that capital will add up, providing you with a little bit of extra liquidity.

Note: You'll need to have excellent credit if you want to apply for this card. There are no requirements for your business like with a traditional loan, but the personal credit for whoever acts as the personal guarantor needs to be stellar.

Rollover for Business Startups (ROBS)

ROBS is a great idea for those with larger retirement savings. ROBS allow you to convert money from your 401K or other retirement account into funding for a business. What's the advantage? Most retirement vehicles like a 401k penalize you if you withdraw money before a certain age. ROBS allows you to avoid that penalty. Essentially, money is moved from your retirement account into a retirement plan owned by the business. That money is then transferred into equity or stocks for your own business, which can then be sold to be used as working capital.

Guidant Financial

We'd recommend Guidant Financial if you're considering the ROBS path. You'll be required to have at least $50,000 in your retirement plan and also be willing to pay roughly $5,000 in rollover fees. As those are the two toughest requirements, Guidant Financial is actually quite lenient. Also, if you have a strong credit score, you could be eligible for an SBA loan of up to $5 million from the same lender.

Equipment Financing

Equipment financing is exactly what it sounds like. If you're purchasing an oven for your restaurant or a copier for your office, consider equipment financing. If applicable, equipment financing is often more advantageous to use than general use loans like terms loans or business lines of credit. Interest rates tend to be lower and they're often easier to qualify for, opening the door to startups.

Currency

Our favorite equipment financing loan is from Currency. It’s an online lender that specifically specializes in equipment financing and it offers a variety of products for different needs, and also have extremely lenient requirements. Additionally, Currency partners with eBay so users of eBay's Express platform have the option to finance equipment bought on eBay with Currency.

Personal Loans

If you feel that small-business loans aren't for you or your business, consider personal loans. Many personal loans have the breathing room to be used for business. While you likely won't be getting huge amounts of financing, they're often easier to qualify for and are a popular alternative for startups. Keep in mind, however, that while business loans usually hold your business assets as collateral, personal loans will hold your personal belongings as collateral.

Lightstream

The best overall personal loan we'd recommend is from LightStream, a division of SunTrust Bank. LightStream offers comparatively low rates, a very high loan amount ceiling of $100,000, and they also offer same-day funding. All in all, LightStream can be viewed as a smaller small-business loan.

Business Grants

Business grants are essentially thought to be free funding where you typically don't have to pay interest rates or fees. However, keep in mind that nothing is free and, in fact, we believe that grants are some of the most costly financing forms out there. In order to be a competitive applicant, you'd likely have to network with the organization or group offering the grant, go through lengthy applications, and you may have to present or pitch your ideas to different audiences. In other words, business grants take a lot of time, and they're notoriously difficult to win. The larger the grant, the more difficult it is to win. Also, given how lengthy the application process is, business grants aren't right for startups in need of quick funding.

That being said, if you're part of an underrepresented group, you may be in luck. There are plenty of grants that are specifically designated for minorities and competition tends to be much lighter for those. For example, there are plenty of business grants specifically for women.

Crowdfunding

Yes, we know that crowdfunding isn't necessarily a form of debt financing, but we felt that we still had to include this on our list given the relatively recent rise and success of crowdfunding platforms like Kickstarter and Indiegogo. These tend to be popular since you don't have to give up ownership of your business and instead, reward your investors with things like gifts. For example, “If you invest X amount with my business, you'll be rewarded with five different variations of our product.”

There is also the equity crowdfunding route where investors finance your ideas in exchange for equity and ownership of your business.

Financing from Friends and Family

Pitching to friends and family is how most startups start. It's easy and fast, hence why so many do it. However, taking money from friends and family comes with its own risks.

The most glaring issue is that funding from friends and family is very, very personal. You’re no longer just risking collateral when you take money from friends and family, but you're also putting your relationship on the line. Don't expect an easy way out if you can't repay loans.

Also, be careful with where the money comes from. You don't want your relatives to empty out their life savings for your ideas just because they believe in you. If you're going to seek financing from friends and family, make sure they understand the business plan; there is a hard plan set in place to either grant equity or repay loans, and make sure legal documents are set in place to spell out exactly what everyone invests.

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