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Types of Loans Available for Startup Businesses

If your startup business needs more money than what you have, you may have to take a loan. Here are some types of loans available for startup businesses.

Types of Loans Available for Startup Businesses

As a startup, getting a small business loan can be difficult. Here are some types of startup loans that fit different situations when you haven’t yet established a successful history.

  • Online Term Loans - Typically available through online lenders and traditional banks, online term loans can be a great way to get the financing you need to grow your business. Term loans from online lenders usually have a maximum between $250,000 and $500,000. If you haven’t been in business for at least six months, consider the other options in this list.
  • SBA Microloans - If your business is eligible, this program offers access to startup loans up to $50,000, terms that last up to six years, and interest rates usually between 8% and 13%. Loans are issued through nonprofit lenders and other financial institutions and backed by the SBA. These loans are generally more accessible to startups with limited financial records and credit history. SBA microlenders are often more committed to funding startups in disadvantaged areas and those owned by women and minorities. 
  • Asset-based Financing - This type of lender financing is secured by your business’s assets, such as inventory, equipment, accounts receivable, and real estate. Since it’s less risky to lenders, this financing often has standards that are more flexible, which makes it a good choice if you can’t meet traditional business loan qualifications. 
  • Personal Loans for Business - Personal loans are easier to qualify for than a business loan, especially if you have limited or no business history. The application and approval process may be less rigorous than for a business loan. Annual percentage rates might be lower than with some business loans, but borrowing limits are usually lower. You are personally responsible for repaying the debt and will be commingling personal and business assets, which may cause bookkeeping, tax and/or legal issues. 
  • Business Credit Cards - Business credit cards offer revolving access to funds that can be used for anything. The application and approval process is faster compared to traditional loans, you are more likely to get approved based only on your personal credit scores, and business credit cards are unsecured so you won’t have to provide valuable collateral. Business credit cards can be used as needed and you only pay interest on any unpaid balances at the end of the billing cycle. It’s a good option for month-to-month operating costs and other expenses that can be paid off each month to avoid interest. 
  • Friends & Family - If you can’t qualify for a traditional business loan or the other loan types mentioned already,  you may want to borrow from friends or family. Before agreeing to borrow money, make sure you’re comfortable forming a business relationship with them. Review your business plan with them, discuss their role in the business, and put the terms of the loan in writing. Make sure everyone agrees to the loan amount, repayment terms, interest rate, and other relevant factors to avoid conflicts. 
  • Crowdfunding - Crowdfunding platforms like Kickstarter or Indiegogo can offer you access to cash to cover operating expenses. Here’s how to do it:
    • Choose an online fundraising platform
    • Create an account
    • Decide how much money you’re trying to raise
    • Set up a crowdfunding campaign

Users can donate different amounts of money that become available when the campaign ends. This form of business funding doesn’t require qualifying through a financial institution, you don’t have to give donors equity, and your business isn’t charged interest or other lender fees. This strategy is best if you don’t need to raise a large amount of money.

  • Small Business Grants - A small business grant is money given to your business to help get it up and growing. Grants are offered by state and local governments, the federal government and corporate organizations. Small business grants don’t require repayment, and there are no fees or interest. Grants are competitive and applications tend to be rigorous and time-consuming. Many grants focus on specific types of businesses, such as those owned by women, minorities, veterans, or immigrants. It may be difficult to find the right grant, apply, and wait for the award in the time you have.

If you want to know more about small business loans, read our article, “How to File a Loan Application for Your Small Business”, or contact us about your marketing needs.

Tags: loans, startup busineses

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Geoff Strauss
May/10/2022

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