Every person who has ever started a business knows about the challenges and stresses accompanying such a venture. However, the most stressful one is acquiring the capital to cover the costs and get your startup off the ground.
So today, I’ll share the best startup loans for entrepreneurs with detailed info on all of these. Also, I’ll tell you about the best startup funding options and share advice on how to qualify and apply for one so you can more easily grow your business.
Table of Contents
- Best Startup Loans for Entrepreneurs at a Glance
- What Counts As a Small Business Startup Loan for Entrepreneurs ?
- Best Startup Loans for Entrepreneurs (Updated 2021)
- How Do We Rate Loans for Startups?
- What Are the Requirements for a Startup Loan?
- How to Get a Small Business Loan for a Startup?
- Other Startup Loans You Should Know About
- Common Uses for Startup Loans
- Conclusion: Startup Business Loans Support Emerging Businesses
- FAQs: Most Popular Questions Related to Startup Loans for Entrepreneurs
It is not uncommon for entrepreneurs to have a hard time getting financing or a startup business loan. It is because banks consider startups risky and are not very willing to approve loans and financing. Still, online lenders don’t have such claims, and many offer small business loans to startups and entrepreneurs.
Next, we come to the conditions you need to fulfill for a lender to approve a startup loan. Most online lenders are much more lenient compared to traditional banks. Since startup businesses usually have poor credit scores, lenders will most probably look at your personal finances. I would advise every entrepreneur and small business owner to get their credit reports in order and build the credit score to improve the chances of getting a loan.
Below I offer some of the best online lenders that provide small business loans for startups and outline their main features.
Best Startup Loans for Entrepreneurs at a Glance
#1 – OnDeck – is an online lender with an impressive reputation and excellent repayment terms. Once approved, you get the funds within 24 hours. The qualifying conditions are a little stricter, but OnDeck has fantastic customer support to guide you through the process.
#2- Kabbage – is one of the best online lenders now, and it has excellent terms for small business loans. This service has a simple application process, with fantastic options for startups, as it offers a line of credit loans with lenient qualifying conditions and reasonable repayment terms.
#3 – Lending Club is among the best financing opportunities for startups. The primary loan options are for small business owners and new businesses looking to get any loan to get their business off the ground.
#4 – Fundbox is an online lender with financing options suitable for small businesses and especially for startups. The application requirements are low; the application process is automated, and the credit score requirement is relatively low compared to other lenders.
You can get a better idea of these Lenders thanks to the comparison table I’ve made
|Lender||Loan Amount||Loan Terms||Time to Funds||Interest Rate min/max||Time in Business||Invoice Factoring|
|OnDeck||$5,000/$250,000||12-24 months||24 hours||10.86%-31%||1 year||No|
|Kabbage||$500/$150,000||6/12/18 months||10 min||2.5%-3.5%||1 year||No|
|Lending Club||$5,000/$500,000||1-5 years||7 days||4.99%-9%||1 year||No|
|Fundbox||Up to $150,000||12-24 weeks/ 24-25 weeks||10 min||4.66%-18%||2 months||Yes|
What Counts As a Small Business Startup Loan for Entrepreneurs ?
Before I delve into a detailed overview of the online lenders that offer loans for startup entrepreneurs and small businesses, let’s first define what counts as a startup loan. A startup loan is a loan that helps the financial needs of a new business.
Particular startup loans are actually personal loans intended to start a new business or grow an existing business that has been active for a short time. However, here we’ll talk about lenders that offer business loans for small businesses and startups that have been in business for a while.
Best Startup Loans for Entrepreneurs (Updated 2021)
OnDeck – Pioneering Online Lender, Streamlined Application
OnDeck is among the pioneering online lenders; it has been around since 2006. This lender provides business loans and business lines of credit for small businesses. The application process is automated, which simplifies things for any busy entrepreneur.
To apply for an OnDeck loan, your startup needs to be active in business for at least one year. The other qualifying conditions include a personal credit score of 600 and over, have annual revenue of $100,000 and over, and have a business checking account.
OnDeck has a list of restricted industries that they don’t serve, and they don’t provide loans for Nevada, North, and South Dakota businesses. However, there is also a dedicated loan advisor for the qualifying businesses who will go over all the available options with you to help you decide.
OnDeck is an excellent online lender option for small businesses that satisfy the qualifying conditions. While this lender will not loan funds to businesses just starting, it provides an excellent opportunity for businesses that are in business for at least a year.
OnDeck is for businesses and startups that have been active for more than one year and can use both a business line of credit loan and a short-term loan.
News: OnDeck Covid-19 Hub
To help businesses navigate the new normal, OnDeck has created a Covid-19 Hub on their website. Business owners can find articles and advice related to all the available government assistance programs and other tools businesses could find helpful.
Kabbage – Great Option For a Business Line of Credit
Kabbage is an online lender that only provides a business line of credit loans ranging from $1,000 to $150,000. The eligible businesses get their funding within minutes of approval, which is very nice for startups and small businesses that need cash fast.
To qualify for a Kabbage loan, a business needs to have a minimal annual income of $50,000 and be in business for 12 months. Kabbage does not have a minimum credit score requirement, as they take a closer look at a businesses’ cash flow statement instead of the credit score, and all loans require a personal guarantee.
The business line of credit provided by Kabbage comes in three repayment terms: 6 months, 12 months, and 18 months. The monthly fees depend on the repayment terms: a 6-month loan has a monthly fee between 0.25 – 3.5%, 0.25 – 2.75% for a 12-month loan, and 0.25 – 2.5% for an 18-month loan.
I like and recommend Kabbage for its straightforward qualifying requirements, the streamlined application process, and upfront terms.
Kabbage is a great option for small businesses and startups that have been in business for at least one year and can do well with a business line of credit loan. Startups with bad credit can also take advantage of Kabbage’s offer, as there is no minimum credit score requirement.
Lending Club – Peer-to-peer Lender, Good Option For New Businesses
Lending Club is a peer-to-peer lending marketplace that allows small businesses, startups, and entrepreneurs to borrow from $5,000 to $500,000. The term loan has repayment terms ranging from one to five years, and once approved, you get the funds within seven days.
Lending Club does not provide the actual funding but only processes the applications and makes the assessments. The loans come from the Accion Opportunity Fund, a network of lenders that grant the loans. A big plus for Lending Club is that they allow users to take out a personal loan and use it to fund their business. The personal loans go up to $40,000 and have repayment terms of up to five years.
The eligibility criteria allow only US-based companies to apply and include 12 months in business, at least $50,000 in annual revenue. The borrower needs to own at least 20% of the business to apply and have a personal credit score of 600.
Lending Club is among the services I would recommend for small businesses, startups, entrepreneurs, and sole proprietorships when considering many online lending opportunities. The loans come with reasonable terms and fair qualifying requirements.
At this time, Lending Club’s loan services are best suited for small businesses, startups, entrepreneurs, micro-businesses, and sole proprietorships that need a loan with a fixed rate and a clear set monthly repayment schedule.
Fundbox is the last online lender that I’ll outline here and is among the lenders that provide loans for small businesses and startups that have been in business for only two months. Instead of looking at the credit score, Fundbox links with your accounting software or business bank account and analyzes the cash flow statements.
The Fundbox loans are a business line of credit loans and term loans. These range from $1,000 to $100,00. The repayment terms for a line of credit loan are between 12 to 24 weeks, while the term loan has repayment terms of 24 to 52 weeks.
If you are faced with bad credit but still wish to get financing for your startup, then Fundbox may be a great choice. However, I need to note that the interest rates are relatively high and go up to 18% and more.
Fundbox is among the online lenders that don’t have high qualifying conditions and lend funds to small businesses, startups, and entrepreneurs that have been in business for at least two months.
Fundbox is a good option for an online lender for any startup, small business, or entrepreneur looking to get funds fast, but has a poor credit score, as Fundbox analyzes cash flow and other factors instead of the credit score.
How Do We Rate Loans for Startups?
When making the selection for the best startup loans, I used the following criteria:
- Qualifying conditions
- Repayment terms
- Loan amount
- Interest rate and how it varies over time
- Origination fees, hidden fees
- Necessary securities/personal guarantees
- Customer service and expert loan advisors help
What Are the Requirements for a Startup Loan?
It isn’t easy to qualify for a startup loan, as not every lender is willing to provide funds to businesses that are not established in their field. Whether it is an online lender or a traditional bank, all lenders have qualifying conditions in place for all applicants.
Startups usually face some difficulties in fulfilling these conditions. The most common requirements for startup loans are credit score, time in business, annual revenue, and a business checking account. Well, many startups usually face issues with these.
Startups usually have poor credit scores due to the struggles of getting the business off the ground, so it is not uncommon for lenders to look at personal credit scores. Of course, some online lenders are aware of this fact and look at the cash flow statements instead of using the credit score as a base for granting a startup loan.
The other conditions like time in business and annual income are also vital, but some lenders have lenient terms. These often include expert help from a loan advisor who can guide you in finding the best loan option for your business.
How to Get a Small Business Loan for a Startup?
When you are looking to start and grow a business and the only thing standing in your way is funding, here is what you can do to improve your chances of getting a small business startup loan:
- Have a great business plan – when building your business, a business plan is an absolute necessity. It serves as a guide for the startup, and it also plays a key role when looking for funding, especially if you are looking for an SBA-backed loan.
- Improve personal and business credit scores – the credit score is among the critical factors for getting a loan. Many lenders understand the struggles of startups, so they consider the personal business score as well. To improve this, make sure you consistently pay your bills in full and on time. Avoid maxing out your credit cards, whether it is your personal or business credit card.
- Have an excellent personal guarantee as collateral – many lenders will often require a personal guarantee when securing a loan. So, it would be best if you thought about what you are prepared to enter as collateral when securing a startup loan.
Other Startup Loans You Should Know About
If your startup does not qualify for a traditional term or a business line of credit loan, here are some other startup loans you should be aware of:
If your startup business struggles with securing a business loan, then you can apply for a personal loan and use the funds to fund your business. The requirements for a personal loan are the personal credit score and income, and they have lower amounts. An important thing to note is that personal loans are not tax-deductible, and many lenders prohibit the use of a personal loan for business purposes.
If your startup business requires equipment, then you should consider applying for equipment funding. This type of loan provides the funds necessary for equipment purchasing, and the equipment itself is the collateral to secure the loan. In case of defaulting on your payment, you will lose the equipment. The usual repayment terms are three to seven years, and this type of loan is a good option for a startup/new business that requires equipment to start the business but doesn’t have the necessary funds.
The Small Business Administration backs SBA loans, and these are considered the best loans one can get. The SBA loans have low-interest rates and a low risk involved with these. Some small businesses and startups are also eligible for an SBA-backed startup business loan that offer up to $50,000, but there are certain strict qualifying conditions. These micro-loans are aimed at startups and small businesses owned and run by minorities, women, veterans, and low-income citizens.
Invoice factoring is a type of funding where a business sells their unpaid invoices to a lender or a factoring company and receive a partial sum from the invoices, usually between 70% and 90%. The lender then gets the money from the debtor, keeping the difference from the total value of the invoice you’ve factored.
The business credit card is not an actual loan as the other options here, but it is a source of funds for a startup or a small business. There are far more lenient qualifying conditions for getting a business credit card, and these come with rewards and cash-back options. I need to note that you should be careful when using a business credit card, as it tends to have higher interest rates, higher APR, and it factors into your credit history and affects your credit score.
Getting a business grant for your startup is like hitting the jackpot, as these do not need to be repaid. However, there are rigorous requirements to apply for one, and there are very few business grants available for startups.
You’ve probably heard of many online fundraising platforms where people ask for money for all sorts of things. Well, you can use crowdfunding/fundraising platforms to get funding for your startup. You can use Kickstarter, Patreon, or GoFundMe, to name a few, and raise funds. It will help if you offer an incentive for your donors, like a promo product or a discount when your product/business launches.
Friends and Family
If all else fails, you could consider asking your friends or family for funds. While it is simple and easy to borrow money from friends or family, there is a considerable risk attached to this type of funding. Many people have noted an adverse effect on their relationships. It would be helpful if you have a written arrangement with the lender(s) and clearly outline all the terms and conditions of the loan, even if it is your friends or family.
Common Uses for Startup Loans
A startup loan can be used for a variety of purposes, like, but not limited to:
- Equipment purchase – a startup loan can be used for purchasing/renting equipment essential for running the business
- Leasing space – you can pay for the lease of necessary space/office/warehouse/etc. with your loan funds
- Fix up space – the loan can be used to fix up your premises, like buying furniture, fixtures, renovate the space, and the like
- Marketing and promotion – the startup loan can be used to pay for the marketing and promotion of your startup business and products/services.
- Working capital – a startup loan can be a good source of working capital or paying the day-to-day expenses of running a business.
- Hiring staff – you can use your startup loan to hire new employees, train them and run payroll.
Conclusion: Startup Business Loans Support Emerging Businesses
While getting a startup business up and running is a task, there are ways to help it. I’ve outlined several online lenders that have good loan offerings for startup businesses, along with the qualifying requirements and loan terms for each one. I hope you consider these, as I’ve found they usually pose a better funding option than traditional banks with more lenient conditions and repayment terms, especially for startups and small business entrepreneurs.
- Best Overall: OnDeck
- Runner-Up to Best Overall: Kabbage
- Best for Pricing: Fundbox
- Best for Startups: Lending Club
- Best for Marketing and Promotion: Kabbage
- Best for Working Capital: Lending Club
- Best for Equipment Financing: OnDeck
How Do I Qualify for a Business Startup Loan?
To qualify for a business startup loan, first, you need to have a terrific business plan in place. Then, consider why you need the funds and which are your best funding options. Take a look at many lenders, from traditional banks to online lenders, and consider the qualifying conditions, interest rates, and repayment terms. As credit score is among the critical deciding factors, make sure you do your best to improve your personal and business credit score. Aim for an over 680 credit score, as the higher this score is, the better your interest and repayment terms will be.
Is It Hard to Get a Startup Business Loan?
Generally speaking, yes, it is hard to t a startup business loan. Many lenders are reluctant to offer funds to startups and businesses that have been active for only a short time. Still, if you take your time and do the necessary research, you will find that there are financing options for startups – you only need to know where to look. Some lenders like Lending Club allow personal loans that you can use to fund your business. Other lenders like Fundbox have low qualifying terms and lend funds to businesses active for only two months, though with high-interest rates.
Do Banks Give Loans to Startups?
Simply said, yes, banks give loans to startups. However, here I need to emphasize that banks usually require collateral that matches the loan amount. This way, in the case of you defaulting on your loan, the bank’s assets will be covered.
Can I Get a Business Loan With No Money Down?
Yes, it is possible to get a business loan with no money down. Still, no loan comes for free, and the lenders that provide loans with no money down usually require collateral that matches the loan amount. Here is a thing to note: if you apply for a business loan with no money down, your interest rates will be higher, which is how many online lenders lend funds to people with bad credit scores.
Can I Get a Startup Loan With Bad Credit?
Yes, it is absolutely possible to get a startup loan, even if you have bad credit. Some things to consider first include the higher interest rates, the lower loan amounts, and more stringent repayment terms. Aim to raise your personal credit score, which is possible with timely and complete payments of your outstanding debts. Please read our article on the best small business loan providers for businesses with bad credit for more info and tips on this topic.
How a Startup Business Loan Can Grow Your Small Business?
Any young business often struggles with finances, as many of the profits usually go back into the business’s growth and development. So, a startup business loan comes in handy, as it can help boost the company’s growth, sustainability, and support expansion. Some of the more fundamental ways how a startup loan can help grow a small business are marketing and promotion, developing new products, and in some cases, help with working capital.