Compare Small Business Loans
Traditional financing and business loans can be extremely difficult to find for start-ups, but there are options available. You might instinctively turn to equity financing, given how synonymous venture capital and start-ups 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 start-up business loans in the market.
Best Start-up Business Loans
Is a Start-up Loan Right for Your Business?
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 start-up. Again, we will echo that loans are not one-size-fits-all. There isn't a single business loan that is going to be the overall best for start-ups. Each will be great for some businesses and weak for others. We've narrowed down the best loans for the common needs that start-ups tend to have.
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. This is the most common form of loan 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 keep working capital at your 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 start-ups go, we recommend the Small Business Administration (SBA) Community Advantage (CA) Loan. There aren't many SBA loans for start-ups, but the CA loan is one that's specifically designed for young businesses. 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 start-ups 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, and that 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 start-ups 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 offers some of the most lenient requirements, which makes it ideal for start-ups 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 its 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 that 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 an APR of 0% Intro APR on Purchases for 12 months on purchases (then an APR of 13.24% - 19.24% Variable applies). 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.
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 start-ups.
Our favorite equipment-financing loan is from Currency. It’s an online lender that specifically specializes in equipment financing, offers a variety of products for different needs and has 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.
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 start-ups. Keep in mind, however, that while business loans usually hold your business assets as collateral, personal loans will hold your personal belongings as collateral.
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 same-day funding. All in all, LightStream can be viewed as a smaller small-business loan.
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 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 start-ups 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 lots of business grants specifically for women.
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 start-ups 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 about 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 legal documents are set in place to spell out exactly what everyone invests.
Summary: Our Top Picks
In the table below, we've listed our top methods of financing start-ups.
Our Top Choice
on the SBA's secure website
|Business line of credit|
on Kabbage's secure website
|Business credit cards||Learn More|
on Currency's secure website
on LendingTree's secure website
|Business grants||Learn More|
How to get a small-business start-up loan
First, you'll need to determine what the purpose of the loan or financing will be. Are you looking to fund a marketing campaign? Do you want to buy or lease real estate? Then determine how much you'll need.
Making those two points clear early on will help filter out any lenders or types of loans that aren't right for your business. For example, you don't want to waste time applying for a loan with a lender who specifically states that they don't finance loans with your objective.
Next, we recommend shopping around and applying with any lender with whom your business meets the minimum qualifications. As a start-up, you won't be guaranteed approval, even if you meet a lender's minimum qualifications. We also recommend that you shop around in order to get your best rates and terms.
Be careful about applying with too many lenders who conduct hard credit checks, as that can temporarily affect your credit score.
How to get a loan to start a business if you have bad credit
Lenders approve borrowers based on multiple criteria, but age of business and personal credit score are two of the most important. Owners of new businesses will have severely limited options when applying, but there are several online lenders who have lenient qualification requirements.
Online lenders often offer the benefits of being easier to qualify with, fast application processing, and intuitive platforms and dashboards to monitor your financing. However, they also often come equipped with extremely high fees, so you'll want to be sure you incur a net positive despite the high cost of borrowing.
Ideally, we'd recommend taking the time to improve your credit score and increase your chances of qualifying for more competitive financing. Taking on external financing to help grow your business comes at a risk, and that risk gets larger the more expensive financing is.
The information related to the Ink Business Cash® Credit Card has been independently collected by ValuePenguin and has not been reviewed or provided by the issuer of this card prior to publication.
Do banks lend to start-ups?
Traditional lenders like banks typically do not lend to start-ups. Banks tend to offer the cheapest and largest financing, but they also tend to be the most difficult lenders to borrow from. They usually require that a business be several years old, has excellent personal credit scores and has strong financials.
What is the best business to make money?
It's tough to say, and your thought process before opening a business should take multiple factors into consideration like the competitive landscape, barriers of entry and more. While we can't give a one-size-fits-all answer here, we did compile a list of ideas that should help you start.
How can I get money to start a business?
We recommend a small-business grant. Grants are a way to get money, but the amount of time and effort spent in polishing up applications to be able to win one is typically not worth the low payouts. However, if you really can't move your business forward without an influx of cash, and a loan isn't right for you, we do recommend applying for a grant.