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Start Up Small Business Loans: Compare Options

What Is A Start Up Business Loan?

A startup business loan is any form of lending for businesses that is aimed at organizations with just a few years or no experience under their belt. There are six primary types of methods of funding for startup businesses, including SBA loans, business credit cards, personal loans, crowdfunding, loans through family and friends and grants.

What Qualifies As A Start-Up Business?

A startup business is a company developed by one or multiple entrepreneurs and founders with an idea for business model that they want to use to fuel financial and organizational growth.

Start Up Business Loans vs New Business Loans

Because startups are new businesses, there are very few differences between these two types of loans. However, there are forms of funding that are aimed at startups with a few years of established experience and are not available to brand new businesses with less than a year or two of operational history.

What Documents Are Needed To Qualify For A Start Up Business Loan?

Before applying for a startup business loan, you’ll need to have a few documents available. Those include:

  • Personal and business bank statements
  • Balance sheets
  • Personal and business tax returns
  • Personal financial details
  • Revenue statements
  • Detailed business plan
  • Statement of intent, or loan “pitch”
  • Personal credit score
  • Insurance or collateral

Depending on which kind of funding you apply for, there may be additional documents that the lender requires to complete your application.

How Much Money Is Needed For A Start Up Business Loan?

In order to qualify for a loan, your business should have a verifiable annual income. Most lenders require a minimum of $50,000 per year, although some may have less stringent income requirements.

How Much Can I Borrow With A Start Up Business Loan?

Because there is such a wide variety of startup business loans and funding methods, loans can be as small as $1,000 and as much as $5 million. Most business loans for startups range between $50,000 and $2 million, depending on the size, financial needs and qualifications of the company.

Top Options for Start Up Small Business Loans

SBA Loans

Best For: A Small Business Administration (SBA) loan is best for highly qualified borrowers who are looking to make major equipment purchases or expand property and real estate. Business who take out SBA loans should have a high annual revenue in addition to at least two years in business. Business owners should also have personal credit scores above 680, and should be able to meet standard SBA requirements.

Overview: SBA loans have some of the lowest interest rates in the business loan industry. With APRs ranging into the single digits, these loans have stringent requirements and can take up to three months to fund. SBA loans start around $25,000 and can reach as high as $20 million in some cases. They also often come with flexible repayment terms ranging between five and 25 years, depending on the amount that was borrowed.

It’s important to keep in mind that despite the low rates that can be offered through an SBA loan, this type of funding is restricted to use only for the intended purpose, so make sure that you fully outline and understand what you need the financing for prior to submitting an application.

Good Option: SmartBiz

If you fulfill the strict list of requirements to obtain an SBA-backed loan but don’t want to wait the two to three months that they often take to fund, it might be worth taking a look at SmartBiz, an online SBA loan-matching platform that cuts the time down to just 30 days. SmartBiz does, however, come with some fees, so make sure you understand what those are before committing to an SBA loan with SmartBiz.

Explore SBA Loans

Business Credit Cards

Best For: Business credit cards are best to use for cyclical expenses such as payroll or regular supply purchases. They’re also good for new business owners who are still building credit, because regularly making payments on even a small credit line can drastically improve a credit score and help businesses gain access to larger quantities and types of funding.

Overview:  Business credit cards are the most popular form of funding, offering businesses across a range of qualifications access to financing of a few thousand up to a few hundred thousand dollars. Business credit cards give owners the opportunity to build their credit scores, while also increasing their credit limits with regular, timely payments. This can also be one of the fastest forms of business funding, with funds often becoming available within just five business days.

Personal Loans

Best For: It could be worth considering applying for a personal loan if you’re having trouble getting approved for other forms of business funding, or your personal financial qualifications are better than your business’. Because personal loans are typically smaller than business loans, this type of funding is best for small expenses such as supply purchases, payroll payments, rent and utility payments, or emergency repairs on small structures.

Overview: Even if you can’t secure a traditional business loan, it still may be possible to secure a personal loan and use the funds for the purpose of financing your business needs. A personal loan can be anywhere from just $1,000, up to $200,000 or more for the most qualified borrowers.

Annual percentage rates for this type of financing generally range between 11% and 35%, with the lowest rates being secured through traditional banks. Many loans can, however, fall outside of this range with APRs ranging up to 99%, so make sure that you carefully review each aspect of a loan offer before agreeing to a personal loan for business use.

Additionally, if you’re unable to repay the debt, defaulting may hurt your credit score more than a business loan would, and could also put your personal assets at risk.

Explore Personal Loans

Good Option: LendingClub

LendingClub is a peer-to-peer lending platform offering personal loans of up to $40,000, with APRs ranging from 6.95% for the most qualified borrowers, up to 35.89%. Their loan terms are between three and five years, and applicants are required to have a credit score of at least 640.

Crowdfunding

Best For: Due to the campaigning nature of crowdfunding, this form of financing is best for businesses who have a cause or purpose that they can rally investors to get behind.

Overview: Crowdfunding is not dependent on a bank, but rather on the ability to campaign online and convince investors to contribute money. Because this is a less formal type of funding, the cash can be used in any way that the organization deems necessary, as long as the use is in line with the crowdfunding advertisements. Most crowdfunding platforms offer access to funds within 30 to 120 days, and the majority of these campaigns outline financial goals between $5,000 and $500,000.

This can be a much lower-cost type of financing, because businesses are not always required to sign traditional borrower agreements stipulating specific repayment terms and interest rates. Instead, companies can pitch their own offers and compensation to use as an incentive to get people to contribute.

Good Option: Kiva

Kiva is an online crowdfunding platform that gives investors the ability to search for campaigns based on their categories, including agriculture, education, eco-friendly and livestock. The platform also doesn’t take any cut of the loans, so lenders and investors don’t have to worry about funds being misused by the platform. On their website, they boast a 96.9% repayment rate and over $1.3 billion in loans.

Grants

Best For: Grants are ideal for businesses with a specific project in mind, and who are operating in an industry that the state wants to promote.

Overview: Small business grants are the definition of “free money” in the startup world. The requirements to get one are quite stringent. However, if you are able to secure one for your business, it can be a tremendous help to your company’s growth. That’s because unlike a loan, you won’t have to repay the grant. In addition to being difficult to qualify for, the grant money can also only be used for the purposes outlined in the grant proposal. Business grants can amount to as much as $150,000 to $1 million, and are offered by both federal and state entities.

Invoice Financing/Factoring

Best For: Invoice financing is best for businesses with cash flow issues and several unpaid invoices. This type of financing is one of the quickest to fund, but is also one of the most expensive options.

Overview: Instead of taking out a traditional loan, businesses can sell unpaid invoices to invoice financing companies, who then advance them a portion of the amount unpaid amount. Once the invoices are paid by the customer, the company sends the remainder of the amount minus the fees for the advance. Businesses can access invoice financing for amounts as low as $5,000 and as high as $5 million. Advances usually become available between one to two business days.

Explore Invoice Factoring

Good Option: BlueVine

Through BlueVine’s invoice financing service, borrowers can access amounts ranging between $20,000 and $5 million. Annual percentage rates for this product start at 15%, with a maximum APR of 68%. Business owners are only required to have a credit score of 530 or above, and funds usually become available within 24 hours.

Equipment Financing

Best For: Equipment financing is best for businesses who are looking to finance equipment purchases or leases without using a traditional business loan. This form of financing can offer more perks than a standard loan.

Overview: Equipment financing typically comes in larger amounts of a few hundred thousand dollars to a few million dollars. This method of financing reduces risk to borrowers’ personal or business assets by allowing them to use the equipment that they’re purchasing or leasing as the collateral for the loan.  Some lenders also allow individuals to access loans to fund equipment leases, not just outright purchases.

Explore Equipment Financing

Good Option: Currency Capital

Currency Capital offers access to equipment financing of up to $2 million. This lender’s interest rates range between 6% and 24%, with origination fees of up to 5%. Currency Capital requires a minimum credit score of 585, an annual revenue above $75,000, and just six months in business.

Family & Friends

Best For: If you don’t have a lot of credit built up and are unable to secure any other forms of funding, you may have to turn to friends and family to help fund your business venture. In addition to directly loaning you money, people who you know can help secure a personal loan for you. Although friends and family may be able to offer you loans, it’s important to start building your business’ credit as soon as possible so that you can get access to more substantial funding that you might need later on in your business’ life.

Overview: The benefit of an informal borrowing arrangement is that these types of loans likely won’t have an impact on your credit score. However, the people who you know may not be able to lend you the amount that you need, so looking into formal methods of funding may be beneficial to your business.

Conclusion

There are a lot of great ways for startup businesses across the board to find the funding that suits their needs. While an SBA loan might offer the lowest rates, some owners might find a better rate through a crowdfunding service or even secure financing for a project through a federal grant. Before applying for a loan for your startup business, make sure to understand how much financing you are looking for, what kind of expenses you’re looking to fund and what your own financial qualifications are.

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