Startup Business Loans: The 9 Best Options in 2023

It can be hard to ignore the itch to start a new business, but a great idea isn’t enough for success. Often, you’ll need to invest a lot of time and money, both yours and from outside, to turn your idea into a viable business.

You may find getting a startup business loan for a new venture is more challenging than borrowing for an established business, especially if you don’t have good personal credit or experience in the industry. But many new founders have had success with different types of financing and funding.

What is a startup business loan?

Startup business loans aren’t a specific type of loan; rather, they are any type of loan used to open a new business. You might need this money to help develop a product or service, hire employees, lease space or equipment, and buy inventory. Startup loans can also include funding for businesses that have opened their doors but are still in the earliest stages.

9 startup business loans and financing options to consider

1. Self-financing
2. Financing from friends or family
3. SBA loans
4. Local business financing
5. Crowdfunding
6. Grants
7. Asset-based financing
8. Business lines of credit
9. Online term loans

Startup loans generally don’t requirebusiness creditor high revenue—lenders know they’re lending money to support a new idea. However, your personal credit and experience in the industry can affect your eligibility and loan terms. You can also use different types of financing to support your business. Here are nine common options.

1. Self-financing

Many new small business owners take out personal loans or dip into their savings to finance their businesses. You may be able to do this with an unsecured loan, business credit cards, or second mortgage, or by borrowing against a 401(k) or other retirement accounts.

These options can be helpful if you’re having trouble qualifying for a business loan or you want to fully own your business rather than selling part of it to an investor. However, you may also be putting your personal assets and savings at risk.

2. Financing from friends or family

You could also try to raise money from friends and family members. In exchange, you could offer to repay them with an ownership interest, or let them buy a portion of your business and potentially profit if it succeeds.

Your friends and family might not require a credit check, and may offer you better terms than what you could receive from other lenders. But consider what can happen to your personal relationships if your business fails and you can’t repay the loan.

3. SBA loans

The US Small Business Administration (SBA) doesn’t offer mostSBA loansdirectly, but it partially guarantees loans offered through participating lenders. You can apply for different types of SBA loans depending on your business and how you plan to use the funds. Although the application and approval process can be lengthy, the guarantee can also make it easier to get a substantial loan on favorable terms, even if you don’t have great credit.

• TheSBA 7(a)loan program is one of the most popular programs and offers up to $5 million in funding. In 2021, about 17% of SBA 7(a) loans went to startups.
• TheSBA 504loan program could be a good option if you’re buying real estate or equipment, but only 10% of those loans went to startups.
• TheCommunity Advantageloan program is for businesses in underserved markets, and 45% of these loans went to startups in 2021.
• TheSBA microloanprogram offers up to $50,000 to start or expand a business, although the SBA doesn’t say what share of those went to startups.

The SBA also has alender matchingtool you can use to find participating lenders and compare loan offers based on your specific needs.

4. Local business financing

You could also look for traditional business loans from local credit unions, community banks, and nonprofits. Although the rates, terms, and requirements can vary depending on the lender, you may find that smaller lenders are more open to working with you based on your personal experience than large banks or online lenders. Some lenders may also participate in local or statewide loan guarantee programs that are similar to the SBA’s programs.

5. Crowdfunding

Onlinecrowdfundingplatforms can help you organize a campaign and raise money from strangers and people you know. There are four common types of crowdfunding: debt,equity, donation, and rewards.

With equity you’re raising money in exchange for a portion of your business, while with a loan or bond you’re taking on debt that must be repaid with interest. Donor crowdfunding, like GoFundMe campaigns, isn’t often used by startups because you have little or nothing to offer in return. But you could consider a rewards-based campaign and offer donors one of your business’s products or services in exchange for their contributions.

6. Grants

There are corporate, local, state, and federalgrants for small business owners, and these can be a great option because you don’t need to repay the money. However, your business will need to align with the grantor’s goals, and there may be a competitive application process.

Grants.govis a good starting point for finding federal small business grants. You can also search for a localSmall Business Development Center, which can provide personalized advice for finding grants, financing, and running your business successfully.

7. Asset-based financing

您还可以使用业务资产作为抵押品a loan when you’re starting a business. These can include business vehicle loans, equipment financing, and commercial real estate loans. Sometimes leasing equipment makes more sense than buying. With an operating lease you’re renting the equipment with an option to buy or return it at the end of the lease period. A capital lease, which is more common, is similar to a rent-to-own agreement.

8. Business lines of credit

Abusiness line of creditcan give you continuing access to funding for your startup. Unlike with a loan, you won’t receive the entire loan amount upfront. Instead, you draw money from your line of credit, which will have a ceiling on how much you can borrow. You’ll also have more flexibility than you would with a term loan because you only pay interest on the amount you borrow.

9. Online term loans

Online business loansare often term loans, which means you receive the entire loan amount when you accept the loan and then make regular payments over a predefined term until the loan is repaid.

Online lenders may also have easier qualifications and a faster application process than traditional lenders, and they might use modern techniques (such as connecting to and analyzing your bank account) to determine who qualifies.

Online lenders such as BlueVine and Fundbox offer lines of credit to startups that have only been in business for six months and three months, respectively. Small businesses can get a loan throughShopify Capitalwithout requiring a personal credit check.

How to get a startup business loan

• Create a business plan.
• Evaluate your personal credit.
• Compare different types of financing.
• Apply for financing.

You may want or need multiple rounds of funding to get your idea off the ground, and the specifics will depend on the options you choose. However, the basic steps start with preparing your pitch, reviewing your qualifications, and seeing what you can qualify for at the time.

• Create abusiness plan.Lenders want to see that you’ve thought through the challenges and opportunities that will come with your new business. Include any relevant information about your experience running a business or working in the industry.
• Evaluate your personal credit.Your personal credit may be a factor in whether you qualify for financing and the rates and terms you receive. Many free apps and financial accounts let you check your credit scores for free. See where you stand and what you can do to improve your credit score.
• Compare different types of financing.Consider how much money you need, when you need it, and how much you can afford to repay as you review the options and home in on your top choices.
• Apply for financing.Review theeligibility and application requirementsand apply with several lenders or organizations. Compare the offers you receive to determine which will be the best fit.