Startup Business Loans: 4 Main Options


Nick Zaryzcki


Reviewed by


April 8, 2021

This article is Tax Professional approved


Applying for a business loan can be a grueling process—and doubly so if you’re a startup.

Should you go to a bank for one, or should you try one of these new online lenders that promise same-day approval? Will they look at your business credit score, your personal credit score, or both? Do you need a business plan to apply for these things?

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Here we’ll go over everything you need to know when shopping for a loan for your startup or new business: which lenders you should consider, how to get ready for the loan application process, and what kinds of repayment terms you should expect.

How do start up business loans work?

Getting a loan for a new business or startup is a lot like getting any other type of loan or business financing:

  • You go to a lender—usually a financial institution or a government agency like the Small Business Association—and ask to borrow a certain amount of money.
  • The lender looks up your credit history and your business’ financial statements to figure out whether you’ll be able to repay your loan, aka your creditworthiness.
  • If they think you’ll be able to repay, they’ll give you an amount of money (the “principal”) which you’ll have to pay back over a certain number of monthly payments.

But there are also some important differences between startup loans and other business loans:

  • Startups usually don’t have much of a track record, so lenders will dig deeper into your credit history—usually asking for both your business and personal credit score.
  • If you’re a new business, they’ll almost certainly require a business plan that shows clearly how your business plans to make money.
  • Because of this, small business startup loans are usually harder to qualify for and can take a lot longer to get approved.

If approved for a startup loan, it’s time to think about your business’s burn rate. This tells you how long your funds will last before you need to be profitable.

Reasons to get a loan

In a perfect world, you wouldn’t finance your startup purely with debt. You’d ask a deep-pocketed Silicon Valley investor to write you a big cheque instead.

But most businesses don’t live in a perfect world, and sometimes new business owners need a bit of help making ends meet and covering all their startup costs, which might include:

  • Incorporation fees
  • Partnership filing fees
  • Legal and accounting fees
  • Customer surveys
  • Market research expenses (publications, focus groups, consulting, etc.)
  • Product research
  • Purchasing big assets like equipment
  • Purchasing commercial real estate
  • A big marketing push

If you’re already up and running, you might also be looking to pay for things like:

  • Day-to-day overhead expenses, like rent and utilities
  • Increasing inventory
  • Hiring employees
  • Building or equipment repairs

How to shop for startup loans

There are six numbers you should keep an eye out for when shopping for a loan for your new business or startup:

  1. The interest rate, which is the rate at which you’ll make monthly interest payments. (This will sometimes be expressed as Prime + some rate—Prime being simply what banks charge their customers who have the best credit.)
  2. The average approval period, i.e. how long it usually takes to get approved or rejected for a loan.
  3. The monthly payment amount, similar to the minimum monthly payments on your credit card.
  4. How good the repayment terms are, i.e. how long you have to repay any money you spend.
  5. Most lenders will charge you an origination fee (or processing fee) for getting your loan set up. According to Investopedia, the origination fee is usually between 0.5-1.0% of the total loan amount.
  6. Many lenders will also charge you a repayment fee for paying your loan off early. Why would they punish you for paying them faster? Because you’re depriving them of the interest income they planned on earning over the full term of the loan.

When researching a lender, make sure to also look them up on Google Reviews or TrustPilot. Look out for any history of poor customer service, or reports of costly errors from grumpy consumers.

What are the best startup loans?

Generally speaking, you’ve got four options when looking for a small business loan to finance startup costs: an SBA loan, a traditional bank loan, a personal loan, or a loan from an online lender.

Small Business Administration (SBA) loans

The SBA loan program is a long-term loan, guaranteed by the Small Business Administration. With some of the most attractive interest rates and loan terms, they’re arguably the best loan you can get. But they’re tricky to get your hands on without good finances and a solid credit history.

  • Repaid over 5-25 years
  • Backed by the US government
  • Interest starts at ~7.75%
  • Can be used for almost any business purpose
  • Max. $5k–$5m
  • Very stringent application requirements

Best for: small business owners with a proven track record of starting successful businesses, a proven financial track record and a credit score of at least 640.

Traditional bank loans

If you bank with one of the big banks—JP Morgan Chase, Wells Fargo,TD—you might try reaching out to them for a traditional business loan. These involve a set repayment schedule and a fixed interest rate. Lenders earn money on the loan interest you pay.

  • Repaid over 1–5 years, usually with monthly payments
  • Fixed interest rates of ~7–30%
  • Can incur early repayment fees
  • Usually used for large, one-off business investments
  • Few use restrictions
  • Max. $25k–$500k
  • Stringent application requirements

Best for: businesses with an existing, steady cash flow and a credit score of 680 or more, looking to finance something big.

Personal business loans

If you don’t have a history of starting businesses, don’t have an established business credit score, but have good personal credit, you might still have luck asking your bank for a personal loan. These can end up costing you less than a business loan, but can be tricky to get ahold of without a solid personal credit score.

  • Repaid over 3–5 years
  • Interest ~5.99–36% APR
  • Should have good personal credit
  • Business credit not taken into account
  • Business lifetime not taken into account
  • Can have more competitive interest rates than a business loan
  • Max. $35k

Best for: new business owners with a strong personal credit score who don’t mind mixing their corporate and personal finances.

Online lenders

Banks aren’t the only place you can go to get a loan these days. A rising group of online lenders is giving traditional banks a run for their money, sometimes beating out traditional services in speed and convenience.

If you’re a new business and got turned down by a traditional lender and the SBA, you might consider applying to an online lender. But beware: these loans tend to have significantly higher interest rates than those offered by banks, have higher required monthly payments, and generally have more stringent repayment terms. Falling behind on payments with one of these companies can get painful quickly.

  • Repaid over 3-36 months
  • Interest highly variable (10%–79% APR)
  • In business for 6 months or more
  • Max. amount highly variable ($5k-$500k)

Best for: businesses that have been rejected by other lenders, have bad personal and business credit, and are looking for a lender of last resort.

If you are a small business owner looking for fast funding, check out our partner Biz2Credit, who can help you get business funding in as little as 72 hours.

Alternate forms of startup funding

Loans aren’t the only form of startup financing. If you have a good credit history and a solid plan for the future, you should also be exploring the following options:

Credit union loans

Credit unions work a bit differently than a traditional bank, since they’re membership-based non-profits (yes, a non-profit bank!). If you need a loan and you’re already a member of a credit union, you should start your loan search there. Their loan rates are some of the lowest you’ll find. And if you have a spotty credit history, but a solid relationship with your credit union, you’re much more likely to get approved for a loan there compared to a traditional bank.

Business credit cards

Getting a credit card for your business obviously isn’t a loan. But if the above loan options don’t for you, a business credit card can give you some flexibility with your working capital. For example, if you sign up for the US Bank Business Platinum card, they’ll offer you 0% APR and no fees for the first 12 months. Assuming you can pay your credit card balance in that time, it’s effectively a free loan. Credit cards can also give you short-term flexibility when you need to make a purchase today, but your client won’t pay their invoice until next week.

Business grants

If your business idea has a social impact angle, you might also want to look for grants. Although they might take some time to track down and apply for, grants are great because you don’t have to repay them!


Think you might have an in with a deep-pocketed venture capitalist or angel investor? Now’s the time to tell them about your big business idea. Think your friends, family and personal support network might be able to help? Explore crowdfunding platforms like Kickstarter and Indiegogo.

A business line of credit

These are similar to loans—the only big difference is that you only pay interest on the amount that you draw from the business credit line. And as long as you don’t go over your credit limit, you can draw from the line indefinitely.

How to apply for startup business loans

The loan application process usually works like this:

  1. You speak with a bank representative and fill out a loan application.
  2. You provide the lender with all the documents they request—your business plan, financial statements, etc. (In some cases, there may be back-and-forth discussion about your business and what you’d like).
  3. Wait a few days or weeks for the lender to approve (or deny) your application.
  4. If approved, you’ll sign a contract agreeing to the loan terms.
  5. The agreed-on amount will be deposited into your bank account and you’ll pay an origination fee.

Different lenders look for different things in an applicant. But the basics qualifiers for business financing include:

  • A good personal credit score (business owner)
  • A good business credit score
  • Minimum operation time (e.g., your business must have been up and running for at least 9 months prior to the application date)
  • Minimum annual revenue

What’s a “good” credit score?

Here’s a rough ballpark, depending on the loan type:

  • Short-term business loan — 550
  • Equipment financing — 600
  • SBAs (Small Business Administration loans) — 640
  • Traditional bank loans — 700+

In addition to a stellar credit score, lenders will ask for evidence to support your application—like income statements, cash flow statements and balance sheets. They might also ask for legal documents, bank statements, tax returns, and a list of any assets the company owns.

Check the loan application requirements before you get started to make sure you have everything you need. If you don’t have financial statements, you can always work with an online bookkeeping service like Bench to do some catch-up bookkeeping and get the historical financial statements you’ll need.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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