5 Best Options for a Startup Business Loan

Date posted: October 9, 2017

By Meredith Wood

So you’ve decided to turn your long-held idea for a startup into a real-life business.

Congratulations! Not everyone has what it takes to become an entrepreneur, and you should be proud. It’s certainly going to be an exciting time in your life.

You’ve carefully planned your business model, including what your business will accomplish and who for. There’s just one problem: securing a business loan.

Especially considering that most traditional business lenders prefer to work with business owners who have a proven track record of running a company (and the profitability to back it up), finding financing for a startup is no easy task.

But thankfully, it’s not impossible. Between traditional and non-traditional financing models, there are plenty of options out there to help you get your startup off the ground. Below, we’ve outlined the top five business loans for startups.

1. Business Credit Card

A business credit card is a great financing option for many entrepreneurs, because it works almost exactly the same way as something probably already familiar to you—a personal credit card.

That’s right—just like a personal credit card, a business credit card offers you a revolving credit line available to you at any time and place (within your pre-determined credit limit). You’ll also qualify for a certain interest rate, and can even have access to a rewards system in the form of points, airline miles, or cash back from certain purchases.

Business credit cards are excellent for new business owners because they give you an opportunity to start building business credit. They also make it easier to keep your personal and business expenses separate—something that will be super important come Tax Day.

A credit card for your business can also give you peace of mind for making big purchases or covering an expense during a business emergency. In fact, you may even want to look into a business credit card with a 0% APR introductory period, especially if you have a tendency to carry a credit card balance from month to month.

But just as with any personal credit card, it’s important not to go overboard with your business credit card. Keep your spending to a minimum, and try hard to make all your payments on time. That way, you can build both your business and your business credit score at the same time.

2. Crowdfunding

Crowdfunding new businesses has been increasingly gaining popularity in recent years, yet many business owners still don’t consider it as an option.

Have you ever noticed one of your friends on Facebook asking for donations to their Kickstarter or Indiegogo campaign? What they’re doing is crowdfunding: raising capital for a venture through the combined efforts of various individual investors. These could include anyone from your customers and potential future customers to family and friends who simply want to invest in your cause.

Often, crowdfunding for startups includes a rewards system for investors. Crowdfunding platforms make it easy to offer campaign contributors an incentive for their investment, such as the product your business will eventually be offering. You can even implement various rewards levels, depending on each individual amount donated.

Be sure to read more about the different types of crowdfunding available for startups.

3. Small Business Grants

Like a small business loan, a small business grant gives you capital you need to get your business up and running. But unlike a loan, grant money is simply yours to take for your business—you don’t ever have to pay it back.

Of course, there’s a huge caveat: grants are often extremely difficult to qualify for. Local, federal, and state governments are a good place to start looking, as they often offer small business grants for specific industries.

4. Startup Equipment Financing

If you’re looking for a more traditional lending experience to finance your startup, you should perhaps consider equipment financing. This puts a piece of equipment that you’re purchasing up as collateral.

This is a great option if the biggest thing you need for your startup is an expensive piece of equipment. The equipment will help you start generating revenue, which will help you pay off the cost of it. An added bonus: for several years, you can write off your equipment’s depreciating value as tax benefit.

Startup equipment financing typically has lower interest rates than other startup loans, so it may be a little more difficult to qualify for. A good credit score really helps when it comes to your equipment financing application.

When submitting your equipment financing application, you’ll likely need a quote from the equipment vendor, a statement of how you’ll be using the equipment for your business, and your detailed credit report.

5. Microloan

A microloan may not be the best option if you need to borrow a substantial amount for your startup, but it may help if your capital needs are lower than those of most other businesses. They typically include low interest rates on loaned amounts between $500 and $50,000.

To paint a picture, the average SBA microloan comes to around $13,000. Because of the low loan amounts, microloans are typically awarded to new startups with small capital needs, businesses with very few employees, or self-employed individuals.

One advantage of a microloan is that almost any registered business will be able to qualify. Though your eligibility will depend on the specific institution, microloans are actually recommended for businesses with little or no revenue history.

Some microloans even give priority to individuals belonging to a certain marginalized group, such as women, those who are low-income, and minority business owners. Microlending also has a history of success in underdeveloped countries by assisting impoverished borrowers with funding for their business ventures. It helps encourage entrepreneurship in developing countries and, in turn, helps to strengthen communities.

Financing your startup may be a challenge, but hopefully after reading about these options, you’ll see that it’s not a hopeless one. The capital you need to grow your business is out there—you simply need to know where to look for it.

Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more. Meredith is also the Senior Financial and B2B Correspondent for AlleyWire.

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