Startups and newer businesses are seen as riskier for lenders than established businesses. Roughly half of small businesses fail within the first five years, according to the Bureau of Labor Statistics (BLS).
However, that doesn’t mean startups can’t get business loans. In fact, many lenders are willing to work with young businesses and offer multiple loan options that are easier to get approved for than traditional business loans.
Our team of business loan experts analyzes dozens of lenders offering multiple loan types available for startups and newer businesses. We ultimately chose lenders that offer more lenient requirements than more traditional business loans and are potentially willing to work with newer businesses and owners with lower credit scores and less revenue.
Some of the criteria we evaluate include:
Interest rates
Additional fees
Loan amounts
Loan terms
Repayment plans
Turnaround times
Credit score requirements
Time-in-business requirements
Revenue requirements
Reputation of the lender
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How to compare startup loans
Consider several factors when choosing the right type of financing for your startup business.
Rates. Interest rates — or factor rates, in some cases — vary widely depending on the lender and the loan type. Be sure to check with multiple lenders to find the best rates.
Fees. Keep in mind that some lenders charge fees on top of interest rates, which add to the loan’s total cost.
Turnaround times. Some loan types offer fast funding, while others, like SBA loans and real estate financing, typically have a lengthier loan process.
Loan terms. Startup loans with easy approval tend to have shorter terms than other types of business financing, so be sure the loan repayments fit into your budget.
What is a startup business loan, and how does it work?
A startup loan helps you start or grow your business or cover short-term cash flow needs, they’re specifically geared towards startups and the self-employed. Startup loans can be used for payroll, inventory, hiring, expansion or equipment. Common options include short-term loans, invoice factoring or financing, equipment loans, merchant cash advances and microloans, which may be secured or unsecured.
Startup loans work like other business financing. You figure out how much funding you need, choose a loan type and apply with lenders that fit your situation. Lenders review your business, credit and revenue, then fund the loan if approved. You repay it with interest on a set schedule.
Some options, like invoice factoring and merchant cash advances, focus more on revenue than credit. These loans often come with less traditional repayment terms, including weekly or daily payments. Whether you’re launching an HVAC, retail, food truck, or plumbing business, a startup loan can give you the working capital to get off the ground and keep cash flow steady in those early months.”
Pros and cons of startup business loans
Consider the benefits and drawbacks of startup business loans before you apply.
Pros
Access to a variety of loan types
Capital to start, grow or operate your new business
Fast funding available
Some loan types help to build business credit
Cons
May have higher rates and fees
May require daily or weekly repayments
Typically shorter loan terms
Some loan types may require a personal guarantee
Compare other types of business loans
To round out your research, consider these business loan lenders to see if they can meet your needs and budget.
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What is the Finder Score?
The Finder Score crunches 12+ types of business loans across 35+ lenders. It takes into account the product's interest rate, fees and features, as well as the type of loan eg investor, variable, fixed rate - this gives you a simple score out of 10.
To provide a Score, we compare like-for-like loans. So if you're comparing the best business loans for startups loans, you can see how each business loan stacks up against other business loans with the same borrower type, rate type and repayment type.
Retail businesses or others that have a lot of credit card sales
How to qualify for startup business loans with easy approval
The exact requirements to qualify for a startup business loan vary by lender and loan type, but here are some basic criteria you’ll likely need to meet:
Six months in business
$10,000 in monthly revenues
A credit score of at least 500 (some lenders require higher scores)
Business bank account
At least three months of bank statements
Some lenders may also require collateral or a personal guarantee to qualify for a startup business loan.
How to apply for a startup business loan
Follow these steps to apply for a startup business loan:
Define your loan purpose. Figure out exactly what you want to use the loan for and calculate how much you’ll need to accomplish your goal.
Explore loan options and compare lenders. Decide which loan option makes the most sense for your loan purpose and the amount you seek. Then, compare multiple lenders to find the best deal. Be sure to compare rates, fees, requirements to qualify and repayment terms.
Prequalify. If possible, prequalify for the loan before committing to a hard credit check. One way to prequalify is through a lending marketplace like Lendio, which gives you access to multiple lenders and loan types with one application.
Gather your documents. Even startup loans with easy approval typically require some type of documentation to qualify. Items to have on hand include personal and business tax returns, bank statements, a loan proposal, a business plan and business financial documents.
Apply. In most cases, you’ll apply online and submit the required documentation or provide access to your business bank account.
Wait for approval. Many startup lenders give you a loan decision the same day you apply, but there could be delays if further documentation is needed.
Get funded and follow the repayment plan. You could receive funding as soon as the next day after approval.
Alternatives to startup business loans
If you don’t qualify for a startup business loan or just want to explore your options, consider these alternatives:
Personal loans. Many startups rely on personal loans to help fund their businesses. Requirements to qualify are typically less strict than business loans, but you’ll need good credit to get the best rates.
Home equity financing. If you own your home, you could leverage your home’s equity with a home equity loan or home equity line of credit (HELOC).
Credit cards. For relatively small financing needs, you may want to consider a card with a 0% introductory rate to finance purchases up to a year or more with no interest.
Business grants. Competition can be fierce for grants, and requirements might be strict, but it could be worth a try.
Equity investors. With a solid business plan, you may be able to get investors to help fund your business in exchange for a percentage of your company.
Frequently asked questions
It's more difficult to get a loan with a low credit score, like 500. But some lenders work with borrowers who don't have great credit. For example, Credibly accepts borrowers with 500 credit scores. Plus, some types of business loans, like invoice factoring and financing, are more concerned with the creditworthiness of your customers than with you.
The SBA's microloan program may be one of the easier options for startups, especially if your business is located in a rural setting or another underserved area.
The easiest startup loans to qualify for are generally short-term loans, equipment loans or merchant cash advances.
Lacey Stark is a freelance personal finance writer for Finder, specializing
in banking, loans, investing, estate planning, and more. She has 20
years of experience writing and editing for magazines, newspapers, and
online publications. A word nerd from childhood, Lacey officially got her
start reporting on live sporting events and moved on to cover topics
such as construction, technology, and travel before finding her niche in
personal finance. Originally from New England, she received her
bachelor’s degree from the University of Denver and completed a
postgraduate journalism program at Metropolitan State University also
in Denver. She currently lives in Chicagoland with her dog Chunk and
likes to read and play golf.
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