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10 Start Up Business Loans Options For Small Business Owners

Updated: Sep 7, 2020

Starting your own business and taking the plunge into all the risks that accompany it is daunting but it is also infinitely rewarding. And while a great business plan is essential to kickstart it all up, there’s one thing that trumps it all: financing.

No matter how much potential your idea holds, you need capital to bring it to life. However, getting that can be difficult for new small business owners especially from traditional lenders. Fortunately, there are plenty of alternative start up business loans available out there. Each comes with its own pros and cons. But it’s all up to you which is the best route to take for your business depending on your goals and available resources.

1. SBA Microloans

Securing start up business loans for small businesses from banks is nothing but difficult given the reluctance of most banks to put their money is these businesses. But that’s what the SBA is for. The agency won’t directly lend you the money. But it’ll set guidelines for the loans made by its partnering lenders, micro-lending institutions, and community development organizations. With this, the SBA guarantees 85% of the loan which then makes the interest rates very low. The best part is that there are plenty of loan types for you to choose from. The only downside is that the SBA requires more paperwork and it can take longer than other loans. If you’re willing to wait though, you’ll be guaranteed one of the cheapest loans on the market.

2. Other Microlenders

Other than the SBA, there are plenty of other microlenders that allow small businesses to secure financing in small increments. Loans from these non-profit organizations can range from $500 to $35 000 and they’re perfect for startup business owners facing a capital gap. Unlike banks, microlenders would often require less documentation and have more flexible underwriting criteria. When signing up for this kind of loan though, be prepared to pay higher interest rates than banks.

3. Business Credit Cards

Business credit cards are much like personal credits. They’re fluid and they’re also revolving. Issuers will simply need to look at your personal credit scores and combined income. And oftentimes, they won’t require collateral. Most business credit cards also have plenty of sign-up bonuses and great rewards programs.

The biggest advantage of these is that you can immediately start separating business and personal finances and establish business credit. Interest rates are quite high though so you don’t want to be carrying a balance for months. A good tip is to look out for a card with a 0% introductory financing offer. These would allow you to carry a balance for up to 12 or even 15 months without paying the interest.

4. Equipment Financing

Equipment financing is just as it sounds like. If you need to purchase an oven, a food processor, HVAC units, or even office furniture, this is the loan for you. The amount you’ll be able to borrow will depend on the price of the equipment and it’s condition whether it’s old or new. The best part is that standards for this are less strict since the equipment itself is your collateral. Much like other start up business loans, terms are paid monthly over a long period of time.

5. Invoice Financing or Factoring

Sometimes, there will be customers who’ll take ages to pay. And oftentimes, this can cause a disruption in your cash flow. That’s where invoice financing or factoring can help you. With this, a service provider will front you 85% of your total invoices which you’ll then repay once your customers pay you. The other 15% is held back for various fees. With this, you can get your money quickly and allow your business to run smoothly. You won’t have to worry about missing bills, payroll, or expansion opportunities.

6. Convertible Debt

With convertible debt, you borrow money from an investor or investor group. This debt is then converted to equity in the future where the investors are guaranteed a set rate of return per year until the agreed date. Unlike other start up business loans, this doesn’t put a strain on your cash flow. The only con to this is that you have to relinquish some control of your business to your investor.

7. Angel Investors

Angel investors have plenty of similarities with venture capitalists. Their main difference is that angel investors are more likely to invest in new businesses even if they haven’t demonstrated any growth yet which VCs would often look for. In addition to providing funds, angel investors are also more likely to guide and assist you in your starting journey since the investment is a little more personal for them. When pitching, just remember a few things. Know your stuff. Prove that you can deal with a tough economy. Don’t just be a fad-follower. And keep in touch with them even if they didn’t bite the first meeting. It’s also wise to have an exit strategy just in case.

8. Crowdfunding

Crowdfunding isn’t necessarily a start up business loan option, however, it is just as profitable as other loans. In crowdfunding platforms like Kickstarter and Indiegogo, you can raise the necessary money from several investors to get you through the development stage of your startup. If you’re interested in this, you should be willing to share your business plan and objectives with a large group of people. You should also be prepared to make a huge effort in your marketing campaigns to attract attention and attract people to your vision.

9. Personal and Friends/Family Funding

Personal loans can also be used for starting your business. Although it’s a bit of a gamble and you won’t get as large a sum as from other loans, this can tide you over the starting stages of your business. You just have to do a solid job of calculating your costs to make the money last until your business can stand on itself. It’s also wise to establish business credit right away even if you’re using personal funds so you can access more capital in the future.

Of course, you can also ask for help from family and friends. To avoid risking your personal relationships though, make sure to have a solid business plan and financial projections in place. Show them you’re serious about their money. But also be honest about the risk they’re taking.

10. Startup Consultants

This isn’t exactly one kind of start up business loans but it’s a helpful way to navigate the waters of your industry with your new company. Remember, one bad decision can predict the future of your company. With startup consultants, you won’t have to find what works for you through pure trial and error. You have a guiding hand with you. They can also help you find the right funding. Although they might charge a premium, it will be well worth it.

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