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Starting a business costs money and a lot of it at that. Aside from your own saved funds, family and friend donations, or investments, startups often require some more capital. Below, we have outlined some options for startup business loans and what each of them entails.

What is a startup business loan?

A startup business loan is a financing option that can be used for various business costs. Oftentimes, new business owners and entrepreneurs will seek out monetary gifts from friends and family as well as save up their own funds to start a business, but usually, it is just not enough. 

With a startup business loan, you can cover initial costs that are necessary to grow a business, like large equipment purchases, retail deposits, inventory, advertising, and more. 

Like any other loan, there are specific qualifications and requirements that you need to have before you can be considered for a loan, as outlined below.

What qualifications do I need for a business loan?

To qualify for a startup business loan, most financial institutions and other lenders require a business to have a detailed business plan, some sort of business longevity, proven consistent cash flow, a strong customer base, and annual financial reports. 

Depending on the type of loan you are looking for, the requirements vary. Typically for a startup business loan, you will need:

  • Good credit
  • Personal tax returns
  • Recent pay stubs
  • Detailed business plan
  • Financial documents
  • Listed collateral 
  • Downpayment

For business lines of credit, lenders may only require a strong personal credit history to qualify for pre-revenue funds.

Depending on the route that you choose to take, there is always a funding program that you can find to fit your business needs.

Types of business loans

  • SBA microloans
  • Other microloans
  • Personal business loans
  • Online business loans

SBA microloans

Government-backed, the U.S. Small Business Administration’s microloan program, also known as the SBA 7 (a) microloan, is geared toward startups offering up to $50,000 for new and existing businesses. Unlike traditional SBA loans, the microloan program is fully funded by the U.S. Small Business Administration through nonprofit, community-based organizations with experience in lending. The average approved microloan is about $13,000.

As each intermediary lender has its own specific requirements for this microloan, generally, each lender would require some sort of collateral and a personal guarantee from the business owner before lending cash out.

Common uses for an SBA microloan would be working capital, inventory, supplies, furniture, fixtures, machinery, and equipment. There are also limitations to loan usage, including purchasing real estate or paying existing debts.

The SBA microloan aims to reach lower-income communities and businesses that traditional lenders usually overlook. Over the last few years, more than 40% of SBA microloans were issued to women-owned businesses.

Other microloans

Outside of the U.S. Small Business Administration’s microloans, there are other microloans available to startup businesses through microlenders and other nonprofit lenders.

This route can be easier to access as a startup loan, especially for those who do not have established credit and rocky finances and cannot qualify for a traditional small business loan. These types of loans are usually short term loans with low interest rates.

Microloans were created in the late 1980s to help people in developing countries to get funding to start a business and raise themselves out of poverty. Nowadays, microloans are geared toward developing areas for the same reasons.

These lenders tend to focus on minorities, women, and underserved small-business owners and small businesses in low-economic communities. Due to these “mission-based” lending organizations, terms and requirements may be more lenient, making it possible to start and grow your business and build business credit.

The thing with microloans is that you have to consider the size of your desired loan. Typically, microloans offer smaller amounts ranging anywhere from $5,000 to $50,000. If you are having trouble obtaining a small business loan from a big bank, it may be time to think about applying for a microloan through an online lender instead.

Personal business loans

Another worthy option for small businesses to obtain financing for their startup business would be to take out a personal business loan which is offered mostly by online lenders, but you can possibly find them at other institutions as well.

To qualify for a personal business loan, business owners need to provide their own personal credit history information. If you have decent to excellent credit yourself, this would be a good option for a brand new business that has not built up enough credit history to qualify for a traditional business loan.

When applying for this loan, lenders will take into consideration your business plan, time in business, and even collateral if need be. Most startups have to face tremendous hurdles in order to be successful, and getting the proper financing is definitely one of them.

As personal business loans may not be designed specifically for businesses like direct business loans, you have more flexibility with the usage of your loan. When compared to startup microloans which may require a few months in business, personal business loans do not necessarily need to prove longevity or cash flow.

However, leveraging a personal loan for your business comes with risks, especially if the business fails. Opting for a personal loan means staking your personal credit; if you cannot repay the loan, you risk losing personal assets.

To put it simply, you can use a personal loan to fund your business. This may even be the only option you have considering the credit history of your startup. If so, it may be worth considering; however, consider the risks before you opt for a personal loan.

Online business loans

Online lenders tend to be more lenient when it comes to approving loans since they can lend more capital than a traditional bank due to not having brick-and-mortar locations. Some online lenders even offer small business startup loans specifically geared toward borrowers who do not have a year in business just yet. Usually, lenders require at least six months in operation to qualify.

Depending on the lender, you may be able to access funding, including short term loans, startup business lines of credit, invoice factoring, and equipment financing. Compared to actual business loans, startup loans will be smaller in size, have shorter terms, and have higher interest rates.

The four best online business loans

The online business loans that we recommend are:

  1. Lendio
  2. OnDeck
  3. Kabbage
  4. BlueVine


Learn MoreOn Lendio’s Website

Lendio specializes in small business loans, including business lines of credit, SBA loans, short term loans, equipment financing, business acquisition loans, and more. Requiring only six months in business and a minimum credit score of 600 to qualify, Lendio is our top choice for a startup online lender.



Learn MoreOn OnDeck’s Website

OnDeck has been one of the leading online lenders for small businesses, specifically for startups. They offer loan amounts starting at $5,000 to $250,000 with a minimum score of 600 and a minimum of one year in business. OnDeck offers business loans in lines of credit, term loans, and SBA loans. Due to its historical reliability, OnDeck is a great option for business owners looking for financing to grow their businesses.



Learn MoreOn Kabbage’s Website

Kabbage, by American Express, was launched in December of 2021 and has hit the ground running in terms of the ability to provide cash flow to startup qualifiers. Kabbage offers loan amounts ranging from $2,000 to $150,000 with a minimum credit score of 640 and one year in business. 

Funding through Kabbage includes upfront cash, equipment financing, and lines of credit. Along with funding, Kabbage has multiple business and financial tools readily available on their app, which makes it user-friendly and a great option for new business owners. 



Learn MoreOn BlueVine’s Website

BlueVine online bank provides financial solutions to experienced and startup businesses. They specialize in business lines of credit and checking accounts. For checking accounts, they offer no fees and 1.5% interest on account balances. For business lines of credit, they offer credit limits ranging from $6,000 to $250,000 with a minimum of 600 credit scores and six months in business. 

They have what is called flexible payment options, where borrowers can make weekly payments, and after 45 days of proven on-time payments, they may be eligible for a credit line increase. Some of the tiers require a longer time in business to qualify, but there are options for most business owners.


The bottom line

Starting a new business is an advantageous venture when executed with the proper funding. Obtaining the necessary amount of financing to get your business up and running is usually the hardest endeavor for new business owners. As there are many startup business loan options out there, they may be hard to find and even harder to qualify for, but not impossible.

We have made it easier for you to research the right startup business loans that work for you and your new business. For more information, check us out at Entreprenuer.com today. 

Information provided on Entrepreneur Guide is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, we do not recommend or advise individuals to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results

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