Compare Flexible Startup Business Loan Rates Starting at 4.66%

Theresa Stevens Accredited Financial Counselor®

“Startup loans typically come with higher interest rates. Since these borrowers don’t have long business histories, lenders consider them more of a risk. That’s why it’s especially important to compare quotes from multiple lenders to ensure you’re getting the best possible deal.  When comparing loan offers, make sure the loan type, repayment term, and interest rate structure — whether the loan has a fixed or variable interest rate — is the same for each one. This will help you make an apples-to-apples comparison.

In addition, here are a few other things to consider when picking the best small business startup loan for your needs:

 Repayment term: Loan repayment terms can range from a few months to 25 years. Most loans require daily, weekly or monthly payments over the loan term. However, some lenders may allow you to make interest-only payments during the startup phase and then principal plus interest payments later.

 Time to fund: Some alternative lenders offer same-day business loans, while others typically approve and issue funds within one to three business days. In contrast, traditional lenders can take up to two weeks or longer to approve and process your loan, with SBA loans taking around 30 to 90 days.

 Collateral required: Collateral is anything of value you own and put up as security for a loan, such as real estate, inventory, equipment, accounts receivable or other assets. The lender can seize the collateral if you default on the loan.

Loan purpose: Some lenders restrict how you spend the funds. For example, you can’t use an SBA microloan to pay off existing debt or purchase commercial real estate. If you want to cover the widest range of business expenses, consider a working capital business loan or working capital line of credit.

Every lender will have its own application process, but here are some general steps to take once you’re ready to apply for a startup business loan.

1. Determine how much you need

Since a startup loan is likely to be your first business loan, it’s smart to keep an eye on how much you’re borrowing. Look at your debts and expenses to figure out how much capital you need and how you’ll use the funds once you’re approved.

Then, use our business loan calculator to make sure any payments you’re anticipating will fit comfortably into your budget.

2. Make sure you meet the eligibility requirements

While every lender has its own small business loan requirements, you’ll likely need to meet the following criteria to get a startup business loan:

 Credit score: If your business doesn’t have an established business credit score yet, lenders will likely consider your personal FICO Score. Although some lenders will accept scores as low as 500, the higher your score, the more likely you’ll be approved.

 Debt-to-income ratio: Your debt-to-income ratio measures how much income you’re bringing in each month versus how much you’re paying out toward existing debts. Lenders typically look for a ratio of 43% or lower.

  Annual revenue: Lenders usually require a minimum annual revenue to qualify for financing, which can range from $30,000 to $250,000 or higher. However, startup-friendly lenders may not impose annual revenue requirements.

  Time in business: The term “startup” can be misleading, since most lenders require you to operate for at least six months to qualify for financing. Some may require a twelve 12-month operating history or more.

 Available collateral: Secured business loans are often easier to qualify for than unsecured business loans. If you have an asset that you can use to back the loan, you may be more likely to be approved.

  Potential cosigners: If you feel that you’re unlikely to be approved on your own, consider applying with a cosigner. The lender will review the cosigner’s financial qualifications in addition to your own, which can boost your approval odds. But, remember, the cosigner will also be on the hook for repayment if you default on the loan.

3. Research and compare lenders.

While getting a loan offer can be exciting, you should shop around to find the right loan with the best rates and fees. Read small business lender reviews in advance to see if a potential lender fits your company’s criteria and needs.

4. Gather required documents.

Business loan requirements vary by lender and loan type. Here are some standard documents you may need to provide when applying for a small business loan for your startup company:

• Personal and business tax returns
• Employer identification number (EIN)
• Copies of business licenses and registrations
• Financial statements and bank statements
• Business plan
• Certificate of good standing
• Details on collateral, if applicable

5. Apply and review.

You can usually apply for a new business loan online with a quick and streamlined process, although some traditional banks might require a phone call or in-person visit. Read the fine print before signing your business loan agreement to ensure you understand the terms, rates and additional fees.

If your business is unable to meet the requirements imposed by most startup lenders, you’ll need to look into some alternative funding options. Here are a few to consider:

• If you have plenty of time to fill out applications, choose business grants: Small business grants are a form of funding that doesn’t need to be repaid. Usually offered by governments or nonprofit organizations, you can search for grants based on your business type, location or demographics, such as minority business grants and business grants for women. But, you’re not guaranteed to receive any funds.
• If you have decent savings, think about bootstrapping: Bootstrapping your startup means relying on your own funds to cover startup business costs. It can be beneficial because you won’t go into debt, but you will need to make sure you can afford to cover these costs in addition to your other expenses.
• If you have a decent credit score or assets, consider personal debt: Personal debt, like a personal loan for business, 401(k) loan, or home equity loan, puts your personal assets on the hook for repayment, rather than your business. It can be a smart option if you have a strong financial profile, but does come with risk.
• If you’ve built business credit, think about a business credit card: A business credit card is similar to a personal credit card, except for business use. Just keep in mind that interest rates on this type of financing can be high and card limits can be lower if you’re just starting out.
• If you have a strong network, ask friends and family: If you have friends or family members willing to give you a loan, this can be one of the easiest ways to get money to start your business. However, you’re limited by their available cash. Plus, you risk damaging the relationship if you can’t repay the loan.
• If you have merchandise on hand, try crowdfunding: Crowdfunding can help you raise money from friends, family and the general public. It’s a low-risk venture because people donate to your business — not invest or lend. However, donors typically expect some benefit in return for their contribution, and these platforms will typically deduct a fee from your donations.