What are the most popular startup business loans? We’ll explore the top funding options that startup founders and boards must consider.
Start-up costs for a business can be substantial, and many entrepreneurs lack the personal savings or financial resources to cover these costs on their own.
Business loans provide a way for entrepreneurs to secure startup capital for their businesses and cover expenses until they generate revenue. However, with dozens of small business loan options, knowing the loan type that suits your organization proves difficult.
To help, we compiled 5 popular startup business loan options. Keep reading to find out more about startup funds and which ones are right for your board of directors to pursue.
What Is a Startup Business Loan?
A startup business loan provides financing for entrepreneurs who are starting a new business venture. This type of loan helps to cover the costs associated with starting a business, such as buying equipment, hiring employees, renting or purchasing a business location, and other operational expenses.
Traditional banks, credit unions, online lenders, and other financial institutions may offer startup business loans. These loans have specific eligibility criteria, such as a minimum credit score or revenue requirements, and may require collateral or a personal guarantee.
The terms and interest rates of startup business loans can vary depending on the lender and the borrower’s creditworthiness. Some startup loans offer favorable terms, such as low-interest rates or longer repayment periods, while others require higher interest rates and more frequent payments.
Startup business loans differ from small business grants, which don’t have to be paid back. A combination of grants, loans and investor backing (with a corresponding startup term sheet) can help entrepreneurs realize their dreams of launching and running a successful business. This in turn creates job opportunities, strengthens the economy, and encourages innovation.
Best Startup Business Loans
There are various options for startup business loans. The best depends on your business’s specific needs and financial situation. Here are some of the most popular and effective startup business loan options:
1. Small Business Administration (SBA)
Small Business Administration (SBA) loans are government-backed loans designed to support small businesses financially. The U.S government reduces lenders’ risk through the SBA agency to help startups access capital easily.
In other words, the SBA agency doesn’t actually issue small business loans — except for organizations recovering from declared disasters. Instead, it acts as a guarantor for small business finance options, enabling businesses to access funds from lenders.
SBA backed loans include:
7(a) Loan: This is the most popular SBA loan program. You can apply for 7(a) loans and use them for buying fixed assets, refinancing current debts, and working capital.
All small businesses in the U.S are eligible for 7(a) loans if they operate for profit and can demonstrate a need for a loan. See the full list of who qualifies for 7(a) loans on the SBA website.
504 Loan: This loan provides small businesses with long-term financing of up to $5 million for fixed assets. Your business is eligible for 504 loans if:
- You operate as a for-profit business
- Your business’s tangible net worth is less than $5 million
- Your average net income is less than $5 million for two previous years prior to your application
Microloan: Microloans are the smallest SBA loan program. This program provides loans of up to $50,000 for small businesses and specific nonprofits. You cannot use microloans to pay debts or buy real estate.
SBA loans offer competitive terms (rates and fees) compared to non-guaranteed loans, and sometimes come with continuous support to help new businesses start and run efficiently. However, they require good credit scores, and there can be a long wait between loan approval and the disbursement of funds.
Visit the SBA website to choose and apply for a suitable loan program.
2. AMEX Business Line of Credit
The American Express (AMEX) Business Line of Credit offers a flexible financing solution that helps small businesses manage their cash flow. This financing option functions as a revolving credit line, which allows business owners to access funds as needed and repay the balance over time.
The AMEX Business Line of Credit has competitive interest rates, no annual fees, and flexible repayment terms. Additionally, the AMEX Business Line of Credit provides business owners access to financial management tools and resources to help them better manage their finances.
Fundbox is an online financing platform that provides small businesses with fast and easy access to financing. The company offers a range of financial solutions, including lines of credit, invoice financing, and term loans, designed to help businesses manage their cash flow and grow.
The platform integrates with leading accounting software, such as QuickBooks and Xero, to provide seamless and efficient access to funding. Fundbox offers flexible repayment terms, with repayment options ranging from 12 to 24 weeks.
4. Fora Financial
Fora Financial is a financial services company that offers small businesses access to funding. The company has various financing options, including working capital loans, merchant cash advances, and equipment financing.
This platform prides itself on its quick and easy application process, with funding decisions made within 24 hours of applying. The company has flexible repayment terms, ranging from three to 18 months, to suit different business needs.
An online lending marketplace that connects small business owners with a network of over 75 lenders, Lendio provides a simple and efficient way for small businesses to access funding, with loans ranging from $1,000 to $5 million.
Lendio’s platform allows business owners to compare rates and terms from multiple lenders, ensuring they get the best deal possible. The company offers a range of financing options, including term loans, lines of credit, and invoice factoring.
OnBoard Supports Scaling Startups
Launching a startup requires a good amount of working capital, which can be raised through small business grants and startup business loans. Tracking funds, writing grant letters, and hosting startup board meetings are all crucial components to the process, made easier with board portal software.
For businesses interested in finding the right board management software, OnBoard’s free Board Management Software Buyer’s Guide provides key insights and information to help businesses make informed decisions.
Frequently Asked Questions (FAQ)
Do Banks Give Loans to Startups?
Yes, banks do offer loans to startups, but the process of obtaining a bank loan for a startup can be challenging. Banks require a solid business plan, a strong credit history, and collateral to secure the loan.
Startups that are not well-established may struggle to meet these requirements, making it difficult for them to secure funding from traditional banks.
What Bank is the Best for a Startup Loan?
There is no single "best" bank for a startup loan. The ideal bank for a startup loan depends on different factors, including the loan size, the business's creditworthiness, and the type of business.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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