12 Best Startup Business Loans: Rates and Requirements (2025)

The formula for taking your new business from startup to scale-up is simple: you need a good idea, time, and money. But simple doesn’t necessarily mean easy: Securing a startup business loan for a new venture is harder than borrowing for an established company, but it can be done.

Ahead, learn the top startup business loans and financing options for funding your startup.

What is a startup business loan?

Startup business loans aren’t a specific type of loan. Instead, they are any loan used to open a new business. Entrepreneurs can use the money to develop products or services, hire employees, lease space or equipment, establish a marketing strategy, and buy inventory.

Lenders don’t expect new companies to demonstrate business credit or high revenue, but they might look to owners’ personal credit and industry experience to determine loan eligibility and financing terms. 

Four reasons to get a startup loan

There are plenty of circumstances that call for financing. Here are a handful of reasons to seek a loan: 

1. Buying inventory: With a startup loan, you can keep bestsellers in stock, lock in bulk discounts, explore new product lines, and optimize your supply chain.
2. Marketing: You can use a startup loan to invest in search engine optimization (SEO), collaborate with influencers, launch a rewards or referral program, or invest in paid search or social marketing.
3. Product development: Develop prototypes, conduct market research, and launch new collections with a financial boost. 
4. Talent acquisition: Onboard experts and contractors, compete for top candidates, promote your best employees, and foster your team’s professional growth.

12 types of startup business loans to consider

1. Self-financing
2. Financing from friends and family
3. Small Business Administration (SBA) loans
4. Local business financing
5. Crowdfunding
6. Small business grants
7. Asset-based financing
8. Business line of credit
9. Online term loans
10. Equipment financing
11. Invoice financing
12. Business credit card

1. Self-financing

Many new small business owners take out personal loans or dip into their savings to finance their businesses. If you’re having trouble qualifying for a small business loan, alternatives may include an unsecured loan, a business credit card, a second mortgage, or borrowing against retirement accounts.

These options can be helpful if you want to be the sole owner of your business rather than selling part of it to an investor. However, you may also risk personal savings and assets since you—not your business—will be liable for the loan.

2. Financing from friends and family

Some startups raise money from friends and family members, repaying them with ownership interest or shares.

Friends and family might not ask for a credit check and could offer better terms than outside lenders. But you must consider the consequences to your relationships if your business fails and you can’t repay the debt.

3. Small Business Administration loans

The US Small Business Administration (SBA) partially guarantees SBA loans from participating lenders. Loan types vary depending on your business and how you plan to use the funds. 

The application and approval process can be long, and you’ll need to meet these SBA loan requirements first, but the SBA guarantee can make it easier to secure a substantial loan on favorable terms, even if you don’t have great credit.

• The SBA 7(a) loan program is one of the most popular, offering up to $5 million in funding.
• The SBA 504 loan program funds land, manufacturing facilities, and equipment investments.
• The 7(a) Working Capital Pilot Program serves businesses at least 12 months old.
• The SBA microloan program offers up to $50,000 to start or expand a business.

The SBA also offers a lender matching tool you can use to find participating lenders and compare loan offers.

4. Local business financing

You could also look for traditional business financing options from local credit unions, community banks, and nonprofits. 

Rates, terms, and requirements vary by lender, but often, smaller lenders are more willing to consider past business experience than large banks or online institutions when approving loans. Some lenders participate in local or statewide loan guarantee programs similar to the SBA programs.

5. Crowdfunding

Online crowdfunding platforms can help you raise money. There are several types of crowdfunding, but the most useful for new businesses are rewards-based and equity crowdfunding.

With rewards-based crowdfunding, entrepreneurs offer perks like first access to new items or hefty discounts on upcoming products in exchange for funds. With equity crowdfunding, businesses trade stakes in the company for financial investments. 

6. Small business grants

Corporate, local, state, and federal grants for small business owners are attractive sources of free money—that’s right, you don’t need to repay them. However, your business must align grant goals, and undergo a competitive application process. 

Grants.gov can help you find federal small business grants. You can also visit your local Small Business Development Center for advice on grants and financing.

7. Asset-based financing

Existing business assets can serve as collateral for a loan. This type of lending is useful if you don’t have robust financials but do have assets like real estate, accounts receivable, or inventory. The loan amount is often a percentage of the appraised value of the assets. 

For example, a lender might offer a loan amounting to 70% of your equipment value and 80% of your accounts receivable. You can use the funds to cover immediate costs and repay the loan as you fulfill orders. 

8. Business line of credit

A business line of credit can provide continuous startup funding. Unlike a loan, you won’t receive the entire amount upfront. Instead, you may draw money from your line of credit as needed until you hit its limit. This gives more flexibility than a term loan because you pay interest on the amount borrowed, not the total available.

Several online lenders offer lines of credit to startups as young as three months.

9. Online term loans

Online business loans are often term loans, which means you receive the entire amount when you accept the loan and then make monthly payments for a predefined term until you’ve repaid it. Here are two examples

• Secured business loans require collateral, such as real estate, inventory, or equipment. If you default on the loan, the lender can seize these assets to recover its losses. This type of business loan for startups tends to have favorable terms because the collateral reduces the lender’s risk.
• Unsecured business loans don’t require collateral. Lenders assess eligibility based on creditworthiness, financial stability, and affordability. This type of startup loan tends to have higher interest rates to reflect its higher lender risks. 

Online lender applications are easier and faster than traditional ones thanks to modern techniques (such as digitally connecting to and analyzing your bank account to determine if you qualify). 

10. Equipment financing

Equipment financing is a loan designed to help businesses acquire equipment or machinery. 

The lender typically provides funds to purchase equipment outright, which then serves as collateral for the loan. If the borrower defaults, the lender can seize the equipment to recoup its losses. This type of financing helps startups procure assets without tying up working capital. 

11. Invoice financing

Invoice financing, or accounts receivable financing, lets startups access working capital by leveraging their unpaid invoices. The lender advances a percentage of the value of outstanding invoices to the business. Once the customer pays the invoice, the lender releases the remaining balance minus fees.

Customer payment timelines usually determine repayment terms for invoice financing, although details can vary. Once customers pay their invoices, the lender deducts the advanced amount—and fees—from the total collected.

12. Business credit card

The main difference between personal and business credit cards is that business credit cards are for business use. Businesses can use pay-in-full cards like Shopify Credit to make purchases, track expenses, and access revolving credit lines to cover cash flow gaps.

Business credit cards make it easier to separate personal and business expenses and to benefit from rewards programs tailored to business spending categories.

Interest rates and fees for startup business loans

Origination fees and closing costs

Origination fees are one-time upfront fees lenders charge to process a loan application. Also known as closing costs, they cover administrative tasks like evaluating eligibility, underwriting the loan agreement, and transferring funds.

Origination fees typically range from 0.5% to 8% of the loan total or principal and depend on factors like credit history. They are non-refundable and typically deducted from the loan principal or paid at the time of issue.

Interest rates

The average small business bank loan annual percentage rate (APR) ranges between 6.42% and 12.41%, per NerdWallet. However, this percentage fluctuates dramatically, depending on your credit score, loan term length, business credit history, and loan type.

Here are NerdWallet’s reported APR ranges by loan type:

• Online term loans: 6% to 99%
• Business line of credit: 10% to 99%
• Merchant cash advance: 40% to 350%
• Invoice financing: 10% to 79%
• SBA variable loans: 10.25% to 14.25% 
• SBA fixed loans: 12.75% to 15.75%

Prepayment penalties

Paying off your loan early means paying less interest. Since lenders do not find this attractive, most add charges to prevent early payment and ensure their profit.

Some small business lenders will let you pay a small percentage of your loan back without penalties. For example, you may be able to pay up to 10% of the loan principal without penalties. Be sure you understand prepayment penalties and other terms before signing.

How to get a startup business loan

You may need multiple rounds of funding to get your idea off the ground, but the basics of securing a startup business loan are the same each time: prepare your business plan, review your qualifications, determine what’s available, and apply.

1. Create a business plan
2. Evaluate your personal credit
3. Build business credit
4. Compare different types of loans
5. Apply for a startup loan

1. Create a business plan

Lenders want you to demonstrate you’ve considered the challenges and opportunities your new venture presents, and a business plan can do that.

A business plan is a strategic document that outlines your company’s goals, strategies, and timelines for accomplishing them. It should include relevant information about your experience running a business or working in the industry.

This guide to writing a business plan has all the details, but for now, here’s a quick overview of what to include in yours: 

• Executive summary
• Company description
• Market analysis
• Organization and management details
• Product or service line details
• Marketing and sales strategy
• Funding requests
• Financial projections

2. Evaluate your personal credit

Your personal credit may factor into whether you qualify for financing and influence the rates and terms you receive. Many free apps and financial accounts let you check your credit score for free. See where you stand and how to improve it, if necessary.

If you spot inaccuracies or red flags on your credit report, take steps to correct them or mitigate their impact. Dispute errors, pay off debts, or negotiate settlements with creditors. If you’re not already in the practice of paying your bills on time, start now, keeping credit card balances low, and avoiding unnecessary credit accounts.

3. Build business credit

Establishing a separate credit profile for your business can improve your credibility with lenders and r access to financing. 

The first step is registering your business and getting an employer identification number (EIN). Then, you can open bank accounts or get a credit card under your business name.

4. Compare different types of loans

Once you’ve assessed your funding options, it’s time to find a lender. To determine your shortlist, consider how much money you need, when you need it, and how much you can afford to repay.

5. Apply for a startup loan

Now you’re ready to apply! It’s helpful to gather financial statements, tax returns, and business licenses so you have them handy for your applications. 

Review the eligibility and application requirements and apply to several lenders or organizations. Compare the offers you receive to determine which suits you best. At this stage, you can negotiate for better terms. 

*Shopify Capital loans must be paid in full within a maximum of 18 months, and two minimum payments apply within the first two six-month periods. The actual duration may be less than 18 months based on sales.