The 5 Best Business Loans for Startups
When you kick off a new startup idea, you can't do without capital, which will probably come from a business startup loan, a specific type of business loan. Before you can even begin to find funding, you need to know what your costs will be. Many startups underestimate their costs and run into difficulties. You need to consider your initial costs such as office premises, plant and production equipment, legal fees, and office furniture. Items that you own are classified as assets and can be used as collateral for your startup loans.
It’s important to include your ongoing expenses for at least the first 6 months of operation until your cashflow gets going. Expenses are areas you have to pay for but don’t get to keep. These cover things like payroll, rent, inventory, marketing, and insurance. Remember to count your business loan repayments among your expenses, too.
Lendio is a lender marketplace that presents pre-approved loan options from a number of providers. Lendio offers business loans for startups as well as business credit cards, SBA government-backed loans, and term loans that are secured on your business or personal collateral. Since it’s a business loan aggregator, it’s difficult to say what rates you’ll get, as that depends on the specific loan provider.
- Great customer service with a personal account manager who’ll help you get the most suitable type of business loan for your startup
- Personal credit score of 680 or higher is needed for most startups
- Loan amounts available from Lendio range from $500 to $750,000, depending on the type of loan you choose and your credit rating
- You may have to put up your new equipment as collateral for a business startup loan
- Repayment terms stretch from revolving monthly credit for a business credit card to 25 years for some loans
- APR can be between Prime+ and 17%, although SBA loans have rates of 6-9%
- It takes between 2 weeks and 2 months to get your money
Kabbage is a lending platform that provides an open business line of credit for startups and small business owners. Once you've been approved for a line of credit, you can withdraw loans whenever you’d like up to your total credit limit, but you’ll only pay interest on the money you actually borrow. Although you need to show one year in business, you can use a Kabbage loan in the early stages of your startup to access extra cash whenever you need it to keep things going while you get on your feet.
- Credit lines can reach up to $150,000 depending on your business’ health, although sometimes you’ll be asked for your personal credit history as well
- Repayments are monthly with terms of either 6 or 12 months
- You won’t generally be asked to post any collateral on the loan, but you will need to give a personal guarantee for the amount you borrow and sometimes, Kabbage will post a general lien on your business assets
- You need to have a business history of at least one year and revenues of $50,000 annually to qualify
- Kabbage doesn’t use a traditional APR rate; Instead, you'll be charged a monthly fee for every month while you repay the loan of between 1% and 10%
Fundbox is a loan platform that lends directly to small businesses using invoice factoring. FundBox advances you the money to cover your bills based on unpaid invoices that your clients haven't yet paid to close the circle on your cash flow. While you need to already have a business set up and some transactions completed to get FundBox funding, there is no minimum number of months in business.
- Loan periods of 12 or 24 weeks
- FundBox provides loans of $1,000 and up to $100,000 using invoice financing
- Repayments are made weekly, with no penalties for early repayment
- Rather than charging traditional APR rates, FundBox charges a flat fee every week which begins at 4.66% of your loan amount
- Once your application has been approved, you can request an invoice to be paid in the morning and receive the amount in your bank account on the next working day
- Qualification is based on your business health, not on your personal credit rating
- You’ll need to already have a business bank account and connect it to the FundBox platform so that it can assess your business health before approving you for loans and telling you your fees
LendingTree is an online business loans marketplace that aggregates and presents pre-approved loan offers from multiple loan providers. With LendingTree, you can access multiple different types of loans suitable for startups, including SBA government loans, a business line of credit and equipment financing loans, long and short-term loans for startups, and invoice factoring.
- Many different types of loans so that you can find the one that suits your startup
- Repayment periods stretch from revolving lines of credit to long-term startup loans with 10-year terms
- APR begins at 5%
- You’ll need to share your personal credit rating as well as your business’ legal documents, business plan, and your business (and possibly also personal) tax returns
Torro is a small online marketplace for loan providers that directly targets startups and new business ideas. It offers automated approval and manual underwriting for your startup loan. Startup business loans available include collateral-free loans, equipment financing, and working capital loans.
- Loan amounts begin at $5,000 and go up to $575,000.
- APR rates vary depending on the specific loan provider, but Torro guarantees that they won’t exceed 36%
- Repayment periods also vary depending on the lender
- Startups can qualify without any trading history by showing a business and possibly also a marketing plan, legal documents relating to the inception of your business, references, and a website and/or verifiable business address
- You'll be asked for your business credit rating if you have any credit yet and probably also your personal credit score, which should be over 650
- Depending on the loan you take, you might not need to provide any collateral
Alternative Ways to Get Funding for Your Startup
As well as considering taking a business loan from one of the top lenders, there are a few other options for kickstarting your new business. You can usually qualify for business credit cards and business lines of credit much faster than regular loans, but if you have a poor credit rating, you'll face a much higher APR. Microloans and SBA government-backed loans usually carry the best interest rates. On the down side, they are usually only for small amounts and can be difficult to qualify for.
Financially, scoring a grant or capital venture investment leaves you with the lowest amount to repay. You could also turn to crowdfunding, or borrow money from friends and family. Although the latter probably won’t charge you interest, you run the risk of ruining your relationship if the business doesn’t succeed. Finally, some entrepreneurs finance their business by taking out a personal secured or unsecured loan. This is highly ill-advised since it increases your personal financial risk.
How to Apply for a Business Startup Loan
When you apply for a business startup loan, you're likely to have to give a personal guarantee, which requires you to have good personal credit, probably 680 or over. Startup business loans tend to go up to $750,000 with the average APR between 7.9% and 19.9% and repayment terms from a few months to several years. You can get lower rates by using your business equipment as collateral for the loan or by getting an Equipment Financing loan, which lets you register your equipment as collateral and use it while still paying off the loan.
You’ll usually need to submit a business plan and list your assets as well as complete the lender’s application form and undergo a credit check. You'll have to send your most recent business income tax returns if you have any yet, and your personal income tax returns for the last three years if you don't. Your business' legal documents, verifiable details, and business financial statements (if you have any) will be requested, as well.
Startup business loans of one sort or another are the best way to get your new business idea off the ground. Now that you have these insights into the startup loans offered by the 5 best online lenders, you can make an informed decision and get the startup business loan that’s best for you.