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Today’s Top Lenders for Startups

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Lantern

Updated May 6, 2021
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Today’s Top Lenders for Startups; If you’re running a startup, the uncertainty caused by the COVID-19 pandemic may be incredibly stressful. In these challenging times, we’re here to connect you to top financing options for your new business.
If you’re running a startup, the uncertainty caused by the COVID-19 pandemic may be incredibly stressful. In these challenging times, we’re here to connect you to top financing options for your new business. The U.S. Small Business Administration (SBA) has coronavirus relief programs in place to help startups like yours, including the Paycheck Protection Program (PPP), which is currently open until May 31, 2021, and SBA Debt Relief. Compare lenders for these programs, explore alternatives, and learn about applying for COVID-related funding options using the resources below.Starting a small business involves many challenges—and rewards—but finding startup capital is one of the most important hurdles for a new business 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 who are top startup lenders?Read on for information about lenders who offer startup loans, types of startup loans, and how to apply for funding. 

Small Business Startup Loans: Our Top Picks

Below are Lantern’s top eight picks for small business startup loans (in alphabetic order). These picks are based on criteria that include 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 common financial solutions for startups in search of funding.

1. Term Loan

What is it? 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 of time.Why choose it?If you’re looking at small business startup loans, a term loan may be a good option because you have flexibility to use the money to invest in various aspects of your business. 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 that the amount you owe can change from month to month (which can be harder to budget for). Both 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 might make 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 it?Much like a personal credit card, a business line of credit lets you borrow money up to a certain limit. You pay interest only on the amount you withdraw from the credit line but can't exceed the approved credit limit.  Why choose it? A business line of credit gives you 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 a handy resource to have.Keep in mind: Typically, lenders want borrowers to have strong credit and revenue histories. Businesses that aren’t well established or lack good business credit may find it difficult to qualify for a business line of credit from a bank. If that’s the case, you may consider applying with an online lender 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 it?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 a variety of 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): These loans are the SBA’s primary form of financial support for small businesses. 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 the capital sooner, you may want to 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 non-profit microlenders. You can use a microloan to fund your business’s working capital, machinery and equipment, inventory and supplies, and furniture and fixtures. For more information on SBA microloans or to find a microlender in your area, contact your local SBA office branch.
Why choose it?SBA loans can have relatively low interest rates and flexible loan terms. They may also offer higher borrowing amounts ideal for larger purchases. If you’re looking 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. If you qualify, you might also look into business startup loans for women and military service members, respectively.Keep in mind: The qualification and application process for government-backed small business startup loans typically take more time than they would for a traditional bank or online loan. If you have limited or poor credit, or need capital quickly, these loans may not be a viable option for you.  

4.  Personal Loan for Business Use

What is it?As opposed to business-specific loans, personal loans are based on your personal credit history but may still be used for business expenses. Why choose it?Personal business loans may serve as small business startup loans for business owners whose  businesses don’t have much credit or history, but who do have good personal credit. In other words, if you don’t qualify for a small business loan, an unsecured personal loan can be a useful alternative to consider. Keep in mind: Maximum unsecured personal loan amounts are typically smaller than business loans. If you want  this loan in order to make a large purchase, you may need to combine it with other forms of financing. Also, keep in mind that the loan and your repayment performance will be reflected on your personal credit records.Finally, some lenders may prohibit you from using personal loan funds for business purposes. Before you apply, talk to potential lenders about any restrictions regarding the use of personal loans for your business.

5. Business Credit Card

What is it?A business credit card is similar to a personal credit card, but it’s issued in your business’s name. It allows you to make purchases for your small business and make payments (with interest) monthly or pay off the total balance each month. Interest rates vary, depending on your credit score and the specific credit card company and offer.Why choose it?Small business owners may use a business credit card to pay for less expensive everyday purchases. The cards don’t require collateral and can be helpful for last-minute purchases and unexpected expenses.Keep in mind:Credit cards may carry higher interest rates than other types of lending options. If you aren’t able to pay off the balance each month, interest will accrue. A business credit card is usually most helpful with expenses you know you’ll be able to pay for the following month.

6. Crowdfunding

What is it?Crowdfunding allows small businesses startups to raise money via a collection of small investments from individual people. With rewards crowdfunding, startups typically provide investors with gifts (e.g. company swag, limited-edition products) in exchange for their monetary support. Kickstarter and IndieGoGo are two popular rewards-based crowdfunding platforms. With equity crowdfunding, startups provide investors with a piece of ownership in their company.Why choose it?If you have a niche product or innovative service and don’t want to take out a loan or credit line, crowdfunding may be a source of funding for your new business.Keep in mind:While you aren’t financing or paying interest with crowdfunding, your supporters may need updates on how their funds are being used. Consider sending out a quarterly report that details how the business is progressing and how funds are being used.

7. Small Business Grants

What is it?Small business grants are offered by private foundations, government agencies, nonprofits, and other sources that support mission-focused startups and individuals. Grants are often available to specific under-represented groups like women, veterans, people with disabilities, and minorities. They don’t have to be repaid like loans, but they can be challenging to acquire.Why choose it?If you have a mission-focused small business and/or you’re a member of an under-represented group of people, grants can be a way to acquire essential funding without the stress of paying back a loan. If you’re a member of an underrepresented group, you may find one or more of the following resources helpful:Keep in mind:Grants aren’t a guaranteed source of funding. They often involve a long application process and waiting period because grantors want to be selective about who they give money to. Additionally, there’s typically significant competition for grants due to the high volume of small businesses applying. It’s important to apply for grants that fit your startup’s niche and to pay attention to any restrictions the grantor may have regarding use of funds.

8. Venture Capital

What is it?Venture capital is funding that comes from a pool of investment dollars offered by corporations, wealthy individuals, pensions, endowment funds, or other investment firms. In return, venture capitalists or firms take a stake in your small business and/or join your Board of Directors.Why choose it?If you have a higher-risk startup that’s eager to grow, has potential for a high rate of return, and are comfortable having a variety of stakeholders, venture capital may be a good funding option.Keep in mind:If you receive funding through venture capital, the firm or venture capitalist often takes preferred stock in your small business, has access to your financials, and can be a part of future decision-making.

Applying for a Small Business Startup Loan

Starting a company can give rise to a lot of questions, and a big one is how do I apply for a small business loan? For your new business, you’ll want to carefully consider startup costs before applying and choosing a loan. To do this:
  1. List all your business expenses with their estimated costs. Some examples of expenses are rent, utilities, permits, inventory, payroll, insurance, marketing, and office supplies.
  2. 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 on a monthly basis.
  3. Add up both one-time and monthly expenses to get an estimate of how much funding you’ll need to kickstart and maintain your business.
After you’ve calculated estimated startup costs, it could be time to apply for a loan. As you’re comparing your options, consider whether you might qualify for specialized funding, like small business startup loans for veterans or minorities. Here are the basics of applying for a small business startup loan:
  1. Choose the type of loan that fits your startup’s needs, keeping in mind the costs you calculated in the previous step.
  2. Decide which type of lender is right for your business. Options include:
    • Private/Online lender
    • Bank
    • Credit union (This is a non-profit, communal entity made up of members who can contribute and borrow money from each other. Credit unions tend to have more favorable loan fees and better customer service than banks.) 
    • Peer-to-peer network (This is a service which helps investors and borrowers work directly with one another)
  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 in order to make a decision.
  5. Compare small business lenders.
  6. Apply for the small business loan or loans that best meet the needs of your startup.

Qualifying for Small Business Startup Loans

If you’re wondering whether or not you may qualify for a small business startup loan, begin with the type of funding you seek. While qualifications may differ by lender and funding type, there’s one main factor to consider: your credit scores.Lenders typically want to know your credit history to determine their level of risk in loaning you money. The higher your personal and/or business credit (if it’s been established yet), the better your chances for obtaining a small business loan, credit card, or line of credit will typically be.If you don’t have great credit, crowdfunding or venture capital could be options to consider. With funding to get your startup running, you can work to 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.When you’re starting a business, your funding eligibility is generally based on your personal credit since you haven’t built business credit yet. If you have poor personal credit, you may still qualify for a loan, but the rates you’re 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 startup small businesses with little or bad credit:
  • Private investors
  • Microlenders
  • Crowdfunding
  • Family and friends
  • Grants

Building Good Business Credit

As you build your business, it’s important to start establishing credit in your business’s name to keep your personal and business finances separate. Good business credit can help you obtain 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. For more information on choosing a structure, visit the SBA Business Guide.
  • Getting a Federal Tax ID number (EIN): You will use this when filing company tax returns, opening bank accounts, and submitting loan applications.
  • Opening a separate business bank account: Doing so keeps your business and personal finances separate, which may help when you’re applying 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 Picks Methodology

To arrive at our top lender picks, we analyzed the top 30 banks and online lenders by monthly search volume. 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 starting 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 funds is less than a week
  • Whether it offers 24/7 support (online or phone)
  • Special benefits/terms for the interest group startups)
Whichever lenders best met the above criteria receive the highest rankings (Data was accurate as of March 3, 2021.)  
Lantern Disclosure: SoFi receives compensation in the event you obtain a loan through the Lantern marketplace. The Lantern website is owned by SoFi Lending Corp., a lender licensed by the DBO under the CFL, license number 6054612, NMLS #1121636 (nmlsconsumeraccess.org). Loans may not be available in all states.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC20002

Frequently Asked Questions

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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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