Small Business Loans for Startups

Small business loans help companies with financial challenges and opportunities, from smoothing out inconsistent cash flow to funding new areas for growth. Unlike established businesses, startups face an additional hurdle when applying for financing because they don’t have as much history.

Some lenders require a minimum time in business before allowing companies to apply for a loan. Others want to see a track record of revenue. These requirements can be hard for startups to meet. But that doesn’t mean there aren’t any options.

Keep reading to find some of the best small business loans for startups, plus what to consider when deciding. You’ll also learn what to expect throughout a typical application process. 

Best small business loans for startups

Embarking on your startup journey requires solid financial backing. Thanks to a variety of lenders that offer small business loans, launching your startup with the necessary funding has never been easier. 

This round-up provides a quick review of the five best small business loans to consider. We’ll explore what these providers offer to startups in need of financial assistance. 

You can click the lender’s name in the table below for more information about its small business loans—or keep reading for more information about all five.

Lender	Loan details	Minimum credit score
Funding Circle	Tailored loans, competitive rates, and a ocus on long-term solutions	660
Bluevine	User-friendly and flexible financing	625
OnDeck	Short-term loans and streamlined application	625
Kapitus	Competitive rates and terms	625
New Silver	Quick funding and competitive rates	650

Funding Circle: Best for SBA loans

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• Competitive interest rates
• Quick application process
• High loan limits

Funding Circle stands out for facilitating U.S. Small Business Administration (SBA) loans. Startups are likely to find its competitive interest rates appealing and the speed of its application process efficient. 

High loan limits are also a possibility for ventures with significant funding needs.

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Bluevine: Best line of credit

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• Flexible repayment options
• Offers revolving line of credit
• Straightforward eligibility requirements

Bluevine‘s reliable line of credit service sets it apart. You will appreciate its flexible payment options as you navigate your startup journey. Moreover, its eligibility requirements are straightforward, and a revolving line of credit ensures you always have funding available.

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OnDeck: Best for fast funding

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• Quick loan delivery
• Transparent repayment terms
• Excellent customer service

For startups in need of fast access to funds, OnDeck excels. Its loan delivery is quick, with transparent repayment terms. Its customer service team is knowledgeable and receptive to queries.

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Kapitus: Best for customization

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• Multiple loan options
• Tailored financing solutions
• Customer-friendly loan terms

Kapitus is our top choice if you’re looking for loan customization. With multiple loan options on the table, you have the flexibility to choose a loan structure that best fits your startup needs. Its personalized financing solutions and customer-friendly loan terms make it an ideal lender.

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New Silver: Best fix-and-flip loans

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• Borrower incentives
• Fast approval process
• No prepayment penalties

New Silver’s attractive borrower incentives appeal to startup house-flipping ventures eager to maximize their loan value. The approval process is quick, ensuring startups can begin operating right away. It doesn’t charge a prepayment penalty, allowing flexibility in managing your startup’s finances.

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What you need to know about small business loans for startups 

There are more loan options available to startups than you might think. Explore different loan types, potential hurdles you may face, and myths about startup financing that may not actually be true. 

Can startups apply for SBA loans?

SBA loans help businesses find financing when they might otherwise have trouble getting approved by traditional lenders. While guaranteed by the federal government, SBA loans are only available through direct lenders. 

There are a number of SBA loan programs available for different purposes and with different eligibility requirements. But there’s only one designed for startups: the SBA microloan program. The maximum loan amount is $50,000, while the typical loan averages $13,000. 

The funds can be used for just about anything besides debt payments or real estate purchases. Other than those restrictions, startups can use SBA microloans for expenses such as:

• Working capital
• Inventory
• Supplies and furniture
• Fixtures
• Machinery and equipment

To apply, you must find a nonprofit intermediary who is approved by the SBA. Each one has its own lending requirements, so you’ll need to research your options before submitting an application. 

SBA microloans are advantageous in that interest rates range between 8% and 13%. The downside is that the loan amount is small and the funding time can be much slower compared to online business lenders.

How can startups get approved for small business loans?

There are many options for getting approved for a small business loan. Contrary to popular belief, banks are no longer the only avenue for receiving financing. More online lenders offer small business financing options with flexible terms—even for startups. 

If your business doesn’t have an established credit history, however, you may need to use your personal credit score to get approved. Depending on the ownership structure, there may be multiple applicants whose personal credit is considered.

In addition to business loans, many digital lenders and fintech companies offer alternative lending options for startups. These may include:

• Line of credit: Draw only what you need when you need it. Some lenders may offer secured lines of credit to improve your chance of approval. 
• Invoice factoring: Get paid for part of your outstanding invoices by selling them to an invoice factoring company. Once the invoice is paid, you’ll receive the balance, minus the factoring fees.
• Equipment financing: Purchase equipment with a loan that is secured by the asset itself.
• Merchant cash advance: For startups with consistent sales, a merchant cash advance is repaid automatically each day from a percentage of your business transactions. 

Can you get small business loans for startups with bad credit?

There are lenders who work with bad credit borrowers, including those running a startup. However, you should expect to pay higher interest rates and fees. Depending on your revenue track record, you may also only qualify for smaller loan amounts.

Many lenders require a personal guarantee, even for business loans. In some cases, you may be required to provide collateral as well. This could include business assets such as inventory, real estate, vehicles, or accounts receivable. 

Remember there are two types of credit that may be assessed as part of your loan application:

• Business credit: As a startup, you may not have any business credit established yet. Easy ways to start building your company credit history include using business credit cards and vendor or supplier credit. 
• Personal credit: Personal credit scores are calculated based on payment history, amounts owed, length of credit history, new credit, and credit mix. 

Some types of bad credit may cause more damage to your application than others. For instance, an applicant with a credit report that has a recent bankruptcy or large outstanding delinquency may be less likely to get approved than one with some late payments or large (but current) credit card balances. 

Ask the expert

Erin Kinkade

CFP®

If you are a sole proprietor, your personal creditworthiness is weighed more heavily than the viability of the business. If you are an LLC, LLP, or S-Corp, lenders will look at your business and personal creditworthiness. Therefore, it is wise to consider moving from sole proprietorship to other forms of business entities as mentioned above. I recommend consulting a business attorney or CPA.

Does the industry of your startup affect your chances of getting a loan?

Yes, getting loans for startups in some industries is more difficult than others. Direct lenders typically have a list of prohibited industries on their websites. 

OnDeck for instance, has a list of more than 25 restricted industries it won’t lend to. It includes a wide range of industries, including bail bond services, firearms vendors, birth tourism, new car dealers, and plenty more.  

The SBA also has a list of ineligible businesses. These include nonprofits, financial businesses, gambling businesses, and others. Before submitting any loan application for your startup, check for restricted industries first. There may be some exclusions you wouldn’t expect.   

How to get loans for small business startups 

When you’re ready to apply for a small business loan for your startup, be prepared to take the following steps.

1. Look at eligibility requirements: Focus your search on lenders that work with startups for the amount of time you’ve been in business. 
2. Choose your funding amount: While more money may seem better when you’re launching your business, be strategic and avoid borrowing more than you need. You need to make sure you can afford your payments without putting too much strain on the company cash flow. 
3. Compare lenders: In addition to reviewing eligibility requirements, also look at fees and funding times. Rates and origination fees can vary, as can the average time it takes to get approved and receive funds in the bank. 
4. Submit your application: As a startup, you may not have years of tax or financial statements, but you’ll still be asked to submit documentation. Gather your formation documents along with any financial projections, a business plan, cash flow statements, and bank statements. 
5. Review your loan agreement: Check for any collateral or personal guarantee requirements, as well as the repayment schedule. Some lenders require frequent payments on a daily or weekly basis, which can be burdensome if your startup has inconsistent cash flow. 

Common reasons applications get rejected

There are many reasons why your startup loan application could be rejected. The best solution is to ask why. Here are some common responses:

• Low or insufficient credit: Credit scores are more important when your business doesn’t have a long track record to evaluate. Ask for tips on what specifically you could improve to strengthen your application.
• Time in business: Not all lenders are willing to approve early stage startups. You may simply need to wait until your business has a longer history of revenue and payment history. 

Ask the expert

Erin Kinkade

CFP®

Having a well-thought-out business plan is a recommendation I make regardless of the likelihood of being approved. If the lender sees that you have a sound plan (including contingencies), it may be more likely to grant an exception despite the time in business. If creditworthiness is not in good order, I suggest creating the business plan and then working on increasing your creditworthiness and reapplying at least six months later or until credit has improved.

Alternatives to small business loans for startups

If a startup small business loan doesn’t seem like the right fit, consider these alternatives.

Government grants

Check out Grants.gov to explore available grants from the government. This includes federal programs as well as opportunities at the local levels as well. For instance, you can filter search results by city, county, and other eligibility requirements to simplify the search process as much as possible. 

Business credit cards

Getting a business credit card is a great alternative to a startup loan because time in business and revenue aren’t important eligibility factors. Instead, creditors look at your personal credit history when reviewing your application. 

Plus, responsibly using a business credit card can help build your company’s business credit score. That can help you qualify for term loans later on.

Crowdfunding

Startups are well-suited to raising money from prospective clients through crowdfunding. The most common strategy is reward-based crowdfunding, which gives donors something in return for their contribution—often a product or some type of early and exclusive access.

Another option is equity-based crowdfunding. In exchange for receiving funds, you’ll give donors a small slice of equity in your startup. 

Not only is crowdfunding a smart way to raise working capital, it also helps to increase awareness in the early stages of your startup.

Ask the expert

Erin Kinkade

CFP®

When it comes to contingency planning, start with having sufficient cash reserves to pay bills and then go from there. An advisory board should help with creating these ideas and basing them on what is reasonable and realistic.