7 Startup Business Loans: Compare Options 2022 Startup Business Loan Options for Entrepreneurs.
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Many small-business lenders require at least a year in business to qualify for financing. But if you’re in the market for a startup business loan, alternative financing options may be available to help get you going, as well as a few types of small-business loans.
Here are seven startup financing options for small businesses to consider.
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
1. SBA loans
The U.S. Small Business Administration’s microloan program is startup-friendly, offering loans of up to $50,000 for small businesses looking to start or expand. The average SBA microloan is about $13,000.
SBA microloans are administered by nonprofit community lenders and are typically easier to qualify for than larger-dollar loans. The downside: Funding may not be sufficient for all borrowers.
The SBAs flagship 7(a) loan program also offers financing that borrowers can use to start businesses. But SBA 7(a) loans are tougher to get.
The loans typically go to established businesses that can provide collateral, a physical asset, such as real estate or equipment, that a lender can sell if you default.
The qualifications are strict, and even if you qualify, applying for an SBA loan can take several months.
Microloans are also available outside of the SBA program, and microlenders and nonprofit lenders can be a less difficult route to access startup business loans, especially if you have shaky finances.
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Many of these lenders focus on minority or traditionally underserved small-business owners, as well as small businesses in communities that are struggling economically.
Because these startup loans often come from mission-based organizations, the terms will likely be better than you would receive from a private lender, making it possible for you to grow your business and establish better credit. That can help you qualify for other types of financing down the road.
3. Personal business loans
New small-business owners can also access financing through personal business loans, such as those offered by online lenders. Personal loans are based on your personal credit history, which makes them a competitive option if your startup is too new to qualify for other business loans.
Personal loans can have high APRs (up to 36%), especially for bad-credit borrowers. That means this type of startup business loan is best for borrowers with excellent personal credit and strong income.
Small-business grants from private foundations and government agencies are another way to raise startup funds for your small business. These aren’t loans, which can make them tough to get. But free capital might be worth the hard work for some new businesses.
For example, if you served in the U.S. military, you can access small-business grants for veterans. There are also small-business grants for women.
5. Friends and family
Perhaps the most common way of financing a new small business is to borrow money from friends or family. Of course, if your credit is bad — and your family and friends know it — you’ll have to convince them that you’ll be able to pay them back.
In these situations, the potential cost of failure isn’t just financial; it’s personal.
Trim your list of friends and family to those who understand your plans, and do your best to make certain they’re comfortable with the risks involved.
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