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Today’s Top Lenders for Small Business Startup Loans

Top Small Business Startup Loans Options of 2022; Looking for funding for a new business? Get the capital you need with a small business startup loan. Find top lenders and apply today.
Lantern
LanternUpdated February 24, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Starting a small business involves many challenges — and rewards. But finding startup capital is one of the most significant hurdles for a new company to overcome. There are numerous small business startup loan options out there, but how do you know which one is right for you? Will you qualify? And what are the top startup lenders?Read on for information about lenders who offer loans for new businesses, types of business startup loans, and how to apply for funding. 

What is a Startup Business Loan?

A small business loan for startups is money granted by a lending institution to help you start a new business. Like other loans, the funds must be repaid with interest, regardless of whether the business succeeds.

Small Business Startup Loans: Our Top Picks

Below are Lantern's top eight picks for small business startup loans (in alphabetical order).These picks are based on criteria including minimum time in business, collateral requirements, and whether the lender offered special programs for startups, among other factors. See a full breakdown of our rating methodology at the end of the article. (The top selections reflect which lenders met the criteria as of March 3, 2021.)

Types of Small Business Startup Loans

Your business is as unique as you are, so your financial solutions will be, too. Knowing your financial outlook and having a clear direction for your business can give you a good foundation for choosing the right funding for your business. Here are a few typical small business loans for startups in search of funding.

1. Term Loan

What Is a Term Loan?

A term loan allows you to borrow a set amount of money from a lender and pay it back (with interest) in smaller payments over a predetermined period.

Why Choose a Term Loan?

If you're looking at small business startup loans, a term loan may be a good option because you have the flexibility to use the money to invest in various aspects of your business. In addition, if approved, you could have immediate access to the capital needed to get your business off the ground.

Keep in Mind

Interest rates for these loans can be variable or fixed, depending on the type of term loan you choose. Fixed interest rates stay the same for the life of the loan, but variable rates are typically tied to an index that fluctuates with the market, meaning the amount you owe can change from month to month. Banks and private online lenders can provide term loans, but banks typically offer lower interest rates to their customers.Another factor to consider is whether a secured or unsecured term loan makes more sense for you. A secured term loan requires collateral that the lender can take if the loan is not repaid. Because secured loans are less risky for lenders, they typically have lower interest rates than unsecured loans. Businesses may also qualify for more capital with a secured loan. If you have collateral to offer, a secured term loan could be an option to consider.

2. Business Line of Credit

What Is a Business Line of Credit?

Much like a personal credit card, a business line of credit lets you borrow money up to a specific limit. You pay interest only on the amount you withdraw from the credit line but can't exceed the approved credit limit.

Why Choose a Business Line of Credit?

A business line of credit gives you the flexibility to withdraw cash when you need it without paying interest on a large loan. When unexpected costs arise or you need smaller amounts of money for business expenses, a line of credit can be handy.

Keep in Mind

Typically, lenders want borrowers to have strong credit and revenue histories. As a result, businesses that aren't well established or lack good credit may find it challenging to qualify for a business line of credit from a bank. You may consider applying with an online lender if that's the case, since these lenders typically have more flexible approval requirements. However, online lenders may also have higher interest rates and lower credit line limits.

3. SBA Loan

What Is an SBA Loan?

These small business startup loans from the U.S. Small Business Association (SBA) are government-backed and offered by banks and other approved lenders. SBA loans can be for as much as $5 million, depending on the type of loan. Qualifying startups can use these loans for various business-related expenses, from working capital to real estate purchases. Here are a couple of SBA loans you might want to consider for your startup: 
  • SBA 7(a): With a standard 7(a) loan, you can borrow up to $5 million for your new business. The application review time for a standard 7(a) loan is 5 to 10 business days. 
  • If you need capital sooner, consider an SBA Express loan, for which the SBA will review your application within 36 hours of submission. With an SBA Express loan, you can borrow up to $350,000.
  • Microloan: Through the SBA's Microloan Program, you can borrow up to $50,000 from qualified nonprofit microlenders. 
For more information on SBA microloans or to find a microlender in your area, contact your local SBA office branch.

Why Choose an SBA Loan?

SBA loans can have relatively low interest rates and flexible loan terms. They may also offer higher borrowing amounts. If you want to grow your business and have strong credit, an SBA loan may help get your startup off the ground. Additionally, the SBA offers educational programs, contracting opportunities, and additional funding options for businesses owned by women and veterans. 

Keep in Mind

The qualification and application process for government-backed small business startup loans typically takes more time than a traditional bank or online loan. If you have limited or poor credit or need capital quickly, these loans may not be viable for you.

4. Equipment Financing

What Is Equipment Financing?

Equipment financing allows businesses to buy large equipment (machinery, vehicles, etc.) using the equipment purchased as collateral. 

Why Choose Equipment Financing?

The biggest benefit to equipment financing is you can make large equipment purchases without having to pay all at once.You may also be eligible for tax deductions on equipment purchased in this manner. Finally, since there's built-in collateral, these loans may be easier to qualify for and have potentially lower interest rates.

Keep in Mind

Equipment financing rates, terms, fees, etc., vary greatly between lenders. Some require a large down payment; some require no down payment. Some may have long term lengths; others may require payment within a few months. A challenge with terms could be that repayment periods could outlast or be equal to the life of the equipment. However, there are options like equipment leasing that may be a smarter option when you need equipment for a shorter amount of time or that has a shorter lifespan. 

7. Invoice Financing

What Is Invoice Financing?

Invoice financing, also called "accounts receivable financing," uses outstanding invoices as collateral for your loan. It typically works like this: For a fee, invoice finance companies advance you a percentage of the unpaid invoices amount, then provide the remaining amount once the invoices have been paid. It can come in a somewhat traditional loan structure, an invoice factoring structure wherein you sell unpaid invoices to your lender, or a receivable line of credit based on a percentage of your outstanding invoices.

Why Choose Invoice Financing?

Invoice financing may be easier for startups to qualify for because the invoices act as collateral, and lenders typically look at your customers and their ability to pay more than your credit score and business history.This option is usually well-suited for B2B companies needing help with working capital during slower periods. Additionally, if your business has an extended billing cycle and you don't want to wait that long between invoice payments, you can use this to have a more consistent cash flow. Funds are often accessible within a few days of an approved, short application.

Keep in Mind

Invoice financing can have higher rates and fees than other types of business startup loans. You also must rely on customers making timely payments, as late payments could negatively affect you in the same way as you not making timely payments on a standard loan.Recommended: How to Start a Minority Woman-Owned Business

How to Get a Startup Business Loan

Applying for a small business startup loan can be intimidating. How much money do you need? What is the application process like? In the interest of transparency, small business startup loans are often more challenging to get than loans for established businesses. As you embark on your search for financing, here are some tips on how to get a startup business loan.

How Much Funding Will Your Startup Need?

All businesses need money. But, determining how much money you need requires a bit of legwork. So, before trying to get a business startup loan, figure out your needs by taking the following steps:
  • Do your research. Learn about the types of expenses your kind of business usually incurs, compare vendors for those expenses, determine reasonable pay for workers, and learn anything else you may need. Talking to other entrepreneurs may help.
  • List all your business expenses with their estimated costs. Examples of costs are rent, utilities, permits, inventory, payroll, insurance, marketing, and office supplies.
  • Separate your expenses into one-time and monthly expenses. One-time expenses are directly related to startup costs, while monthly costs are recurring items like rent and utilities. Having two lists will help you understand what you will need to budget for each month.
  • Add up both one-time and monthly expenses to estimate how much funding you need to kickstart and maintain your business.
After you've calculated estimated startup costs, it could be time to apply for a business startup loan. Consider whether you might qualify for specialized funding like small business startup loans for veterans or minorities as you're comparing your options.

Applying for a Startup Business Loan in 6 Steps

Here are the basics of applying for a small business startup loan:
  1. Choose the type of loan that fits your startup's needs, considering the costs you calculated in the previous section.
  2. Decide which type of lender is right for your business. Options include:
  3. Determine what you qualify for by checking your business and personal credit history against different lenders' minimum requirements.
  4. Prepare documentation like bank statements, legal documents, and business plans. Lenders will likely need to review these.
  5. Compare small business lenders.
  6. Apply for the small business startup loan or loans that best meet the needs of your startup.
Recommended: A Guide to Liquor Store Loans

Qualifying for Small Business Startup Loans

Qualifying for small business startup loans may look different from qualifying for loans for established small businesses. This is because your business hasn't yet proven it's a good investment for a lender.Once your business becomes established — at least a few years old and reasonably successful — lenders will likely base their decisions on your business' credit, history, and so forth. But, for now, they may rely primarily on your personal finances.While qualifications may differ by lender and funding type, here are a few things lenders commonly look at when considering small business loans for startups:
  • Business plan: Your business plan shows lenders you know what you're doing and how you're going to succeed. 
  • Credit reports: Lenders typically look at applicants' personal credit reports when determining if they want to lend them money to start a business. The higher your personal and/or business credit, the better your chances for obtaining a small business startup loan, credit card, or line of credit will typically be.
  • Legal documents: Prove your business is legitimate by providing licenses, registrations, franchise agreements, or other documentation you have had to finalize to open your business.
  • Tax returns: Sharing your tax records and other IRS-related documents for a minimum of two years not only makes you look prepared but may be required for business registration.
With funding to get your startup running, you can build your business credit and better your chances for securing loans down the road. 

Startup Funding Options if You Have Bad Credit

If you're looking for a small business startup loan with bad credit or no credit, you may face additional challenges in finding adequate funding. But there are options to help you get a solid start with your new business, beginning with building good credit.If you have poor personal credit, you may still qualify for a loan for your new business, but the rates offered may be higher. Additionally, the amounts you can borrow may be lower until you've built more credit. Here are a few financing options for small startup businesses with little or bad credit:
  • Business credit card: A business credit card allows you to make purchases for your small business and make payments monthly.
  • Crowdfunding: Crowdfunding allows small businesses startups to raise money via small investments from individual people. 
  • Family and friends: You can ask people in your personal life for help funding your business.
  • Microlenders: These lenders typically offer smaller loans and may be easier for startups to qualify for. The SBA has a microloan program that offers loans up to $50,000 through nonprofit, intermediary lenders.
  • Private investors: Some individuals invest in small businesses and startups. Angel investors are often particularly desirable, as they have high net worth and may cover a good amount of business costs.
  • Small business grants: Small business grants are free money offered by private foundations, government agencies, nonprofits, and other sources that support mission-focused startups and individuals.
  • Venture capital: Venture capital comes from a pool of investment dollars offered by corporations, wealthy individuals, pensions, endowment funds, or other investment firms. Venture capitalists or firms take a stake in your small business and/or join your board of directors.
Recommended: Top Small Business Grants for Minorities

Building Good Business Credit

As you build your business, it's important to establish credit in your business's name to keep your personal and business finances separate. Good business credit can help you get small business loans in the future and receive favorable interest rates and loan terms. Here are a few tips to building up good business credit:
  • Making your business legal: Select a business structure (such as an LLC, LLP, or corporation) that aligns with your business needs. 
  • Getting a Federal Tax ID Number (EIN): Use this when filing company tax returns, opening bank accounts, and submitting business loan applications.
  • Opening a separate business bank account: Doing so keeps your business and personal finances separate, which may help when you apply for loans.
  • Building credit with vendors: You can apply for net terms that allow your business to buy supplies on credit. These purchases and payments are typically reported to business credit bureaus, which in turn, can help build your business credit profile.
  • Regularly checking business credit reports: Pay attention to whether there's any outdated or incorrect information so you can update or correct it to help maintain good business credit.

Top Small Business Startup Loan Lenders: Methodology

We analyzed the top 30 banks and online lenders by monthly search volume to arrive at our top lender picks. We ran that list against the following criteria: 
  • Minimum credit score is 650 or below
  • Minimum time in business is one year or less
  • Minimum annual revenue is $100,000 or less
  • No collateral required
  • Interest rates start at 20% or below
  • Maximum loan term is 25 years or longer
  • Maximum loan amount is $500,000 or higher
  • Simple application (online, no mailing or going into the bank required)
  • Time to send funds is less than a week
  • Whether it offers 24/7 support (online or phone)
  • Special benefits/terms (if relevant)
Whichever small business loan for startups lenders best met the above criteria received the highest rankings. (Data was accurate as of March 3, 2021.)  
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About the Author

Lantern

Lantern

Lantern is a product comparison site that makes it easy for individuals to shop for products and compare offers with top lenders. Lantern is owned and operated by SoFi Lending Corp., the digital personal finance company that has helped over one million people get their money right.
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