Start-up loans for business can be a great way to finance your dreams and get your ideas off the ground if you want to start a new endeavor.
Luckily, there are many financing options. But, at the same time, it can be stressful to try and figure out which one is the best and which you should avoid. Choosing the wrong start-up loans for new businesses could set you back significantly instead of helping to vault you forward.
In this article, you’ll find some of the main loans for business, along with the basic details of each and how to get a loan for a new business.Fund Your Startup!
What is a start-up business loan?
A start-up business loan is a financial product designed and explicitly geared toward entrepreneurs and new venture launches.
Often, they will have lower qualification requirements and more favorable repayment terms since applicants often don’t have long credit histories and time in operation.
10 start-up business loan options for entrepreneurs
Below is a list of the most common types of business funding for start-up companies.
1. Small business loans for start-up business
Financial institutions offer start-up loans for new businesses. These loans are specific to the unique situation and needs of entrepreneurs.
There are a lot of really great features of these loans to start a business.
Some lenders will have lower application and qualification requirements.
One excellent option is a new business funding product offered by Camino Financial called the Solopreneur loan.
Our loan is an excellent alternative for smaller businesses that are just starting and don’t have the history or means of other more well-established businesses. You can also use it if you’re just planning to open a business.
To qualify, you just need to be current with your outstanding debt, have at least $1,500 in monthly income, and have a bank account that’s been active for at least six months. We also accept applicants who have no credit history.
You can apply with either a Social Security number or an ITIN.
The loan size ranges from $1,500 to $7,500, and the repayment period can last between 12 and 36 months. Plus, the fixed APR can fall between 33% and 35%.
This is an excellent option for entrepreneurs who need some financing to get their new project off the ground. With very low requirements, it’s one of the best start-up loans for small businesses on the market.Apply now!
2. SBA Loans
The Small Business Administration offers the best loans to finance a starting a business.
Private lenders offer these SBA loans, but the SBA guarantees up to 85% of the loan.
You can qualify for a loan of up to $5 million through the SBA 7(a) program, the most common program they offer. Any loan of up to $25,000 does not require any collateral. Loans of greater than $350,000 do require collateral, though.
The SBA caps the interest rate at Prime rate plus 2.25% for loans of seven years or fewer and Prime rate plus 2.75% for seven years or more.
SBA microloans for start-up business
Another type of SBA loan is microloans for start-up businesses, which are very popular. These loans offer up to $50,000, but the average loan is roughly $13,000.
The rates for their microloans for start-up businesses can vary but are generally between 8% and 13%.
The downside is that the application process for SBA can be quite extensive.
You’ll have to provide financial statements, background, personal borrower information, income tax returns, business history and overview, a copy of your business lease, and potentially even more information.
You’ll also need a minimum personal credit score that could be close to 700, as well as clean credit history.
SBA loans require applicants to have a Social Security number to apply.
3. Credit Cards
Credit cards are one of the most common forms of financing available in the world. They are relatively easy to qualify for, and financial institutions that provide them offer quick and straightforward application processes, which you can complete in minutes online.
Some entrepreneurs may choose to use personal or business credit cards as start-up loans for businesses, and there are some positives to doing this.
For one, you don’t have to take out a large amount of money upfront. Instead, you can just tap into your available credit line whenever you need it to pay for any number of expenses.
You’ll also only make repayments on the amount of money you’ve used on the business or personal credit card.
Personal credit cards are generally easier to qualify for. They typically just require a credit check, and that’s it. You won’t need to provide detailed background information or business documents
The flip side, though, is that both personal and business credit cards often charge very high-interest rates.
In many cases, the interest rate for credit cards used as a start-up business loan will be at least 20%, if not a lot more. These rates make this type of funding very expensive, very quickly.
Most lenders that provide credit cards will require a decent personal credit score and credit history. Some will accept bad credit, but they will often offer very low credit limits, making them not a good fit for start-up loans for business.
Some companies will also accept an ITIN for applicants in lieu of a Social Security number.
There are only a limited number of companies that offer ITIN credit cards, though, and an even more limited number for businesses.
4. Microloans for Start-up Businesses
Microloans are very similar to regular business loans. But, as the name implies, they’re micro: they offer smaller amounts of money.
These are great alternatives for business owners who need more capital than what a personal loan offers but don’t need massive amounts.
They’re perfect for entrepreneurs that are just starting.
Microloans can be easier to apply for because they offer smaller amounts. In other words, the lender might have fewer requirements or be more open to lending to people with bad credit scores.
Depending on the lender, you can expect to receive amounts from $5,000 and up to $75,000 (compared to regular business loans that can advance up to $400,000 or more).
At Camino Financial, we can offer you a microloan with fixed rates, 24 to 36 months to pay, and annual interest rates starting at 25.5%.
To qualify, you just need to meet our minimal requirements:
- 9 months in business
- $2,500 in monthly gross sales
- own at least 50% of the business
- have an ITIN or SSN
5. Invoice Financing
Invoice financing is another option that small businesses will turn to when they need extra cash. This type of financing is a little different than the others mentioned so far.
With this type of loan, you will receive the amount of money in the current business’ outstanding invoices instead of borrowing in clumps or one lump sum.
A lender that offers this financing will essentially purchase the business’ outstanding invoices. That company will then be responsible for collecting the outstanding money.
The business benefits because they don’t have to collect the invoices and get their money fast.
You won’t need a credit check because the outstanding invoices will give you the financing.
The downside to this is the lenders charge a high fee for doing so. For example, the lender may only pay 70% of the value of the outstanding invoices. These rates mean you will be leaving a lot of money on the table.
In addition, this isn’t a great alternative to business loans for start-up businesses because you’ll need to have actual outstanding invoices to qualify.
If you are new and don’t have any outstanding invoices—or even if you have just a little bit—this probably isn’t a viable option.
6. Line of Credit
A line of credit works very similarly to a credit card.
A lender will approve you for a set credit limit, and you can draw down on that limit whenever you need it to pay for whatever you need. The interest you will receive it’s linked to the money your drawdown.
The flexibility in what you drawdown and what you must repay are some of the most significant benefits of a line of credit.
The downside is that you are often limited to how much you can draw at any one time.
Even if the lender approves you for a credit limit of $50,000, you may only be able to draw down $2,000 at a time, for example. These amounts severely limit what you can do with this financing.
The typical repayment period for a line of credit is 12 to 36 months, and the interest rates can be pretty high—as much as 25% or more.
Most lenders will require an SSN to apply and a good credit score for start-up business loans.
7. Personal loan for business start-up
Another option is to take out a personal loan for a small business start-up loan. It’s a viable option for entrepreneurs who want to finance the new business venture on their own anyway.
Instead of relying on the business’ credit, time in operation, or financial statements, the lender will give personal loans on the merits of the entrepreneur.
This is why many people just beginning a new venture will go this route for start-up business loans.
Typical personal loans will offer as little as $2,000 and as much as $50,000. They generally offer pretty decent repayment options that could last anywhere from two to five years. Many offer fixed interest rates as well, which is a nice feature.
The positive aspect of personal loans is that it relies only on the individual’s financial situation and nothing about the business. The downside is the fact that many don’t have very high borrowing limits.
Practically every company that offers personal loans will require a Social Security number and not an ITIN.
Interest rates for most personal loans will start at 10% but could go as high as 30%, depending on several factors. This is especially true if you need your money fast and don’t have a great credit score.
You can use Solopreneur Loans as personal loans, which means you can access capital even if you only have an ITIN. And we also approve of people with no credit scores.
Many start-up companies are turning to alternative funding sources such as crowdfunding. This type of funding will search for private people to help fund a start-up business.
People can invest in start-up businesses on popular crowdfunding sites online, and the people will receive something in return. Most of the time, they will own a piece of the company.
The benefit of this type of financing is that there is no interest charged. Instead of paying interest in return for the money, the entrepreneur will give up part of the ownership in the company in exchange.
This can also be a downside, though. Giving up an ownership stake in the company before it even starts can cost an entrepreneur more money down the line than interest charges would.
There is no official approval or application process for this type of start-up business loan. Instead, entrepreneurs will set up a page on a crowdfunding site and tell their story about who they are, what they’re doing, and why they need the money.
They will then be responsible for marketing the page so that people will go to it and, hopefully, decide to invest.
9. Angel Investors
Angel investors work in a similar way to crowdfunding in that it’s money from private people who are investing in your company.
The main difference is that these angel investors are typically single individuals—or a small group of individuals—. These are the type of people who has experience in investing in start-ups.
Many entrepreneurs prefer back by angel investors, especially as TV shows featuring them are so popular. However, it’s not always easy to get them on board.
Angel investors are typically very picky in which companies they choose. Also, they don’t usually invest in conceptual ideas or start-up companies without some proven track record of success.
Again, there’s no limit to the amount you can obtain this way, nor a typical application process. Instead, you’ll have to give a pitch presentation to potential angel investors, hoping one of them shows interest in you.
They will probably also require you to submit documents about the business and maybe even yourself as well.
There’s no repayment here, as this is investment money. However, you’ll most likely be giving up part ownership in your company in exchange for the funding.
10. Friends and Family, or Savings
There are 2 final options:
Borrowing money from friends and family—or having them invest in your company.
This alternative can work as a loan (with a repayment period and terms) or an investment. There are usually no application and approval processes since the people involved are your friends and family.
Your friends and family may charge interest if it’s a loan, though, and you will negotiate with them directly. On the other hand, if it’s an investment, you’ll be giving up ownership of your company.
One final option would be to take money out of your savings.
Using savings might not be viable for everyone, though, depending on how much financing you need and how much you have. It also could be risky, as you may have no other money to fall back on if you need some for your personal life.
Don’t use your personal savings nor risk your relationships! It’s better to get a loan.Get Approved For A Loan Today
Is a Startup Loan Right for your Business?
As you consider the various funding options you’ll have for your business, you will undoubtedly question whether a start-up loan is right for your business.
Many people would like to avoid taking on debt if they have to, especially as they start a new venture.
But, at the same time, many people don’t have the available cash on hand that’s necessary to fund a new business out of their savings. And friends and family aren’t always a great option, either.
As you’re considering small business start-up loans, you should ask yourself whether you can afford it on your own or through the help of private people you know.
If there are no grants available, and crowdfunding isn’t an option—or didn’t work—then start-up business loans might be your only option.
But don’t get discouraged if this is the case for you. In fact, small business start-up loans are actually really good and can be highly beneficial to your new business.
What many small business owners don’t know is that debt is not always something negative. On the contrary, it can be very beneficial if used correctly.
For one, loans don’t require you to put down a lot of your own capital to start your venture. This will allow you to diversify the money you have or, in other words, not put all your eggs in one basket.
Obtaining financing through start-up loans for business can allow you to grow your business instead of forcing you to get significant returns right away.
This freedom is truly a great thing and can help you take advantage of other prime opportunities as they arise.
Pros and Cons of Small Business Loans for Start-ups
Pros of Startup Loans:
- Having money to invest not only gives your business a boost but can help you improve your profits.
- As you make timely payments, you build credit to qualify for more credit in the future.
- And don’t forget that a small business loan enables you to use cash to purchase inventory, equipment or set aside an amount for emergency expenses.
- Loan proceeds also help business owners regulate cash flow as they grow their business.
Cons of Startup Loans:
- Some lenders may require start-ups to provide collateral such as a vehicle or a cash deposit to secure the small business loan. However, most new business owners don’t have assets to offer.
Fortunately, Camino Financial loans don’t require collateral.
Requirements for a Startup Business Loan
Lenders vary as to their requirements, with some being more strict than others. Lenders need enough financial information to determine the lending risk of a potential borrower. To be eligible for a loan, you must be able to repay the loan.
You won’t have a business credit score as a start-up business; that’s why the lender will review your personal score and tax returns.
Lenders might also ask to see your business plan.
Since you haven’t established a business credit score, the lender might ask you to sign a personal guarantee indicating you will repay the loan should your business fail.
Some lenders may require personal assets as collateral to qualify you for the loan.
Lenders will verify that you’re current with creditors and do not have outstanding financial debts. They will also want copies of business documents such as your business registration and license.
Camino Financial loans have minimal requirements.
How to get start-up loans for business
If you’ve decided to pursue small business start-up loans, you should prepare yourself for the process ahead.
Depending on which option you choose, realize that you may need to provide the lenders with different documents, and you may have to meet additional qualifications.
In general, though, you will have to provide any lender with basic personal information as well as information about the business you own or are starting.
You’ll need to provide your Social Security number or ITIN, depending on the lender you choose.
You may need to provide documentation that proves that you own the business, that you have been in operation for a certain amount of time, and that you have been successful in your endeavor so far.
Some of the documents that could help prove this is:
- Articles of incorporation
- Profit and loss statements
- Bank records (personal and business)
- Tax returns (personal and business)
- Detailed business plan
The application process is typically relatively quick, and you can even complete some online. The major difference in the process for start-up loans for business is in the discovery and document phase.
Some lenders might have you provide all of the documents above, and possibly even more.
But at Camino Financial, we won’t burden you by requiring a trove of documents to prove your worthiness. Our application process is entirely paperless and effortless. Plus, it’s completely online: apply anytime, anywhere.Get Approved For A Loan Today
Tips to improve your chances of getting a small-business start-up loan
No matter what start-up loans for a business you’ve decided to go for, there are some tips you can follow to put yourself in the best position possible to qualify.
1. Strengthen your financial situation
First and foremost, you should try to get yourself in the best personal financial situation possible.
This means making sure you have a relatively good history of paying your bills on time.
You should be current on all of your current bills so that traditional and online lenders see that you’re not already falling behind before taking their money.
While not all lenders will require a high credit score, it’s always a great idea to boost it if possible.
The better you look from a personal financial situation, the more likely you will be to qualify for as many startup loans for business as possible.
2. Make sure you have everything you need
In preparation for applying for a loan, you should also get all of your main financial documents and business documents in order.
Lenders are often impressed by organized entrepreneurs and have all their ducks in a row, so to speak.
A red flag for a lender is the fact an entrepreneur shows signs of disorganization if they don’t have basic documents—or have trouble getting them.
So gather all of these documents before you even apply for start-up loans for business so that if your lender asks for them, you have them already set up and ready to send.
3. Have a business plan
It’s also a great idea to have a detailed plan in place for how you plan to spend the money they lend you—and how you plan on paying it back.
If a lender is on the fence about approving you, a business plan could push them over the edge in your favor.
You can finance your start-up!
Turn out start-up loans for business is a great option when an entrepreneur needs funds to get a new project off the ground. It can allow you to grow your business over time without having to worry that you’ll be draining your savings in the meantime.
Businesses need money to survive.
In fact, the reason why most new small businesses fail is that they’re not appropriately funded. This is why a Camino Financial small business start-up loan is such a great option.
New businesses and those trying to get off the ground will particularly love our Solopreneur loan.
We build this financial product specifically to the needs of entrepreneurs to help support their new business venture.
We offer unsecured business loans for start-ups, which means we’ll approve you without collateral.
Plus, we don’t require a lengthy credit history or high credit score for start-up business loans or years in business to qualify.
We even accept applicants with an ITIN because we know how hard it is for immigrants to get the necessary funding to start a new business.
Apply for a loan with us today to help your new business venture get off the ground and succeed for years to come.Apply now!
FAQs about Start-Up Loans For Business
How can a start-up business loan grow your small business?
Start-up business loans are a great way to allow you to grow over time and put in the necessary investments into your business.
Businesses take time to grow, and they take money to help them get there.
Unless you have a lot of money in your savings, you won’t have a solid way to obtain this money without start-up loans for business.
How can I get a loan to start a business if I have bad credit?
You can get business start-up loans for bad credit despite having few options!
There are some lenders who approve applicants with bad credit, but they usually make you pay for it with high interest and fees.
Luckily, Camino Financial doesn’t do that. So, depending on your situation, we can advance the loan you need, even if you have a bad credit score!
Are there any start-up business loans for minorities with bad credit?
At Camino Financial, we specialize in helping minority business owners other lenders or financial institutions turn down.
We will not only review your FICO score, but we will use our CaminoScore technology to reach a loan decision. This helps us approve many small business owners with bad credit scores.
Do banks lend to start-ups?
Banks will lend to start-ups (also credit unions). However, they often have higher qualification requirements and will force borrowers to go through an onerous application process to see if they qualify.
If you plan to go with a traditional bank for start-up loans for business, you will have to provide many documents to prove you’re worthy.
Do I need to have a credit score for start-up business loans?
Most lenders will require that you have a credit score to get start-up business loans.
Some, such as Camino Financial, don’t require a credit score or any credit history at all, though.