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’s possible.
Ahead, learn about the top startup business loans and other financing options for funding your new business.
What is a startup business loan?
A startup business loan is any loan an entrepreneur uses to open a new business. Entrepreneurs can use the money to develop products or services, hire employees, lease space or equipment, establish a startup 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.
Why should you get a loan for your business?
There are plenty of business costs you can cover with financing. Here are a handful of reasons to seek a loan:
- 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.
- Marketing. You can use a startup loan to invest in search engine optimization (SEO) and paid search, collaborate with influencers, and launch a rewards or referral program.
- Product development. Develop prototypes, conduct market research, and launch new collections with a financial boost.
- Talent acquisition. Onboard experts and contractors, compete for top candidates, promote your best employees, and foster your team’s professional growth.
Business loans for startups with no revenue
Startup business loans usually don’t require much financial history or collateral. These business financing options work well for entrepreneurs starting with little or no business income:
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 (borrowing without collateral), 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. “I just risked my own capital because, one, I believed in the product, and two, I wanted people to know that I had skin in the game,” Marcus Milione, founder of athletic apparel brand Minted New York, says on an episode of the Shopify Masters podcast.
However, going this route means you may also risk personal savings and assets since you—not your business—will be liable for the loan.
Financing from friends and family
When starting a business, you can get money from friends and family. In return, you can give them part ownership or shares in your company. Friends and family likely won’t ask to check your credit score and might offer you better loan terms than banks or other lenders.
However, these types of loans typically won’t help you build business credit. You should also think carefully about what might happen to your personal relationships if your business fails and you can’t pay them back.
Crowdfunding
You can use online crowdfunding websites to get money for your business. For example, Vicky Pasche used Kickstarter to raise money for gender-neutral clothing brand Dapper Boi. Pasche credits being able to connect with audiences and “solving a problem” to the campaign’s success; the founder aimed to raise $18,000 but ended up at $26,000.
There are different types of crowdfunding, including:
- Donation crowdfunding. This type of fundraising, facilitated by sites like GoFundMe, doesn’t require you to offer financial rewards or incentives for backers. You also don’t need to repay donors.
- Rewards-based crowdfunding. In this model popularized by Kickstarter, funders get rewards, like a thank-you note, special merch, or discounts, in exchange for helping to fund your business. Apps like Crowdfunder combine the rewards-based model with preorder functionality, giving crowdfunders early access to new products.
- Equity crowdfunding. With this option, you give people a stake in your company in exchange for their money. Registered equity platforms include Fundable, StartEngine, and Crowdcube.
Small business grants
You can get business grants from companies, cities, states, and the federal government. You don’t have to pay this money back.
Getting a grant is competitive; you’ll need to apply and potentially align with a specific mission or goal. For example, a business might award grants to entrepreneurs who can show how their company is innovating in its field.
The amount of money you can receive from grants varies widely. Sisters Niki and Ritika Shamdasani, cofounders of South Asian–inspired clothing company Sani, raised $110,000 through various grants. “A portion of that $110,000 in non-dilutive funding was from an organization called NC IDEA, which helps fund North Carolina businesses,” says Niki on an episode of the Shopify Masters podcast.
Search for federal small business grants on Grants.gov. For more help finding grants and money for your business, visit your local Small Business Development Center.
Microloans
Microloans are small loans, usually between a few hundred dollars and $50,000. These loans can be helpful to new or small businesses that can’t qualify for other types of funding.
Some places to find microloans are Accion Opportunity Fund, LiftFund, Kiva, and Grameen America.
Easy-approval startup loans
These funding sources have quick approval processes. They are an option for startups that need financing right away.
Merchant cash advances
A merchant cash advance is a type of unsecured funding that gives you a lump sum of money upfront for expenses like salaries, rent, and inventory costs. In return, you agree to pay back the advance and fees by giving the provider a percentage of your daily credit or debit card sales.
Unlike traditional loans with fixed monthly payments, MCA payments adjust based on your sales volume. When business is slow, you pay less. When sales are strong, you pay more.
A few options to secure a merchant cash advance include Shopify Capital, Rapid Finance, and Reliant Funding.
Equipment loans
Equipment financing is a loan that can 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.
There are equipment finance companies like Taycor Financial, but you can also use banks for equipment loans.
Invoice financing
Invoice financing, or accounts receivable financing, lets businesses access money quickly by leveraging their unpaid customer invoices. The lender advances a portion of the value of your outstanding invoices. When your customer pays their invoice, the lender releases the remaining balance minus their fees.
Invoice financing can help with cash low issues. The repayment schedule usually depends on when your customers pay their invoices, though details can vary between lenders.
Asset-based financing
You can use your business assets as collateral to get a loan. This type of loan is helpful when you don’t have strong financial records but own valuable assets like property, unpaid customer invoices, or inventory.
The loan amount is usually a percentage of your assets’ worth. For example, a lender might offer 70% of your equipment’s value.
Best overall startup loans
These financing methods are for businesses with some history. They can provide funding for expansion or operational needs:
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 SBA loan requirements, but the SBA guarantee can make it easier to secure a substantial loan on favorable terms, even if you don’t have great credit. Here are a few different types of SBA loans to consider:
- SBA 7(a). This loan program is one of the most popular, offering up to $5 million in funding for working capital (for example, to purchase equipment) and other financial help to grow your business.
- SBA 504. The SBA 504 loan helps businesses purchase or expand fixed assets, such as buildings or land. The maximum loan amount is $5.5 million.
- SBA microloan. SBA loans offer a fixed sum at a specific interest rate over an agreed repayment period. You can typically use the funds on a broad range of expenses.
The SBA also offers a lender matching tool you can use to find participating lenders and compare loan offers.
Business line of credit
A business line of credit provides ongoing funding for your startup. Similar to a business credit card, you use money from your credit line—up to a maximum limit—whenever you need it. Unlike a small business loan, you don’t get all the money at once.
This gives you more flexibility than a loan because you only pay interest on the amount you actually use, not on the total amount available to you. Some online lenders give lines of credit to startups that have been in business for as little as three months.
“If you’re bootstrapped, get a line of credit from your bank and work off of that working capital rather than seeking investment from the beginning,” Hillary Markenson, president of haircare brand Reverie, says in an episode of the Shopify Masters podcast. This strategy can help manage unexpected expenses while retaining your independence.
You can access a business line of credit through online lenders, banks and credit unions, and the SBA’s CAPLines program.
Loans for established startups
These options can help more mature startups grow or cover day-to-day needs:
Local business financing
Local credit unions, community banks, and nonprofit organizations may offer financing. The interest rates, payment terms, and requirements differ depending on which lender you choose.
Smaller lenders are often more willing than large banks or online lenders to consider your past business experience when deciding whether to approve your loan. Some lenders participate in local or statewide loan guarantee programs similar to the SBA programs.
Term loans
A term loan is a one-time lump sum of cash that you repay with interest over a set period of time, or term. It works similarly to a mortgage and helps established businesses expand, buy additional inventory, or improve operations.
There are short-term loans that take about a year, intermediate-term loans that take between one and three years, and long-term loans that take between three and 25 years.
There are two types of lenders that provide term loans: banks and fintech companies and online lenders. Banks tend to have low interest rates but have more stringent requirements, like a high credit score and, sometimes, collateral. Fintech companies and online lenders are typically faster—some offer same-day or next-day approval—but they may have higher interest rates and fees and shorter repayment terms.
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—which require that you pay off your balance completely on or before the statement due date—to make purchases, track expenses, and cover cash flow gaps. Shopify Credit’s pay-in-full Visa also offers 3% cash back on eligible purchases.
Peer-to-peer lending
Peer-to-peer (P2P) lending platforms connect you directly with individuals or companies who want to invest their money. It’s often faster than getting a bank loan because P2P platforms use automated systems to check your creditworthiness, financial statements, and business projections.
After you’re approved, multiple investors can each fund a portion of your loan until you get the full amount you need.
If you have good credit, P2P loans might offer competitive interest rates. However, if your business is very new or has an unstable financial history, you might face higher interest rates and lower maximum loan amounts.
Popular P2P lending platforms include Prosper and Upstart.
Interest rates and fees for startup business loans
Here are some of the typical rates and fees associated with business loans:
Origination fees
Origination fees are one-time upfront fees lenders charge to process a loan application. These fees 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 nonrefundable 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 6.57% and 11.7%, according to NerdWallet. However, this percentage fluctuates 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: 14% to 99%
- Business line of credit: 10% to 99%
- Merchant cash advance: 40% to 350%
- Invoice financing: 10% to 79%
- SBA variable loans: 10.5% to 14%
- SBA fixed loans: 12.5% to 15.5%
- Equipment financing: 4% to 45% APR
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 with and without revenue
- Calculate how much you need
- Create a business plan
- Evaluate your financial situation
- Compare different types of loans
- Apply for a startup loan
Whether you’re starting a new venture or trying to expand your existing business, you’ll generally follow the same steps to secure a startup business loan:
1. Calculate how much you need
Start by using a business loan calculator to determine how much funding you need. First, identify what the loan will cover. For example, if you make hot sauce, you might seek funding for a commercial kitchen. Next, consider the costs beyond an initial investment. In the kitchen example, you would also factor in maintenance costs, commercial insurance, and utility costs.
2. Create a business plan
Not every loan will require a business plan, a strategic document that outlines your company’s goals, strategies, and timelines for accomplishing them. But writing a business plan can show lenders you’ve considered the challenges and opportunities your business presents.
If you’ve already launched your business and made sales, show financial statements and future estimates and explain how you’ll use the extra money to run or grow your business. If you’re new, focus on market research, showing your business idea is profitable, and your plans to make money. Attach any proof that your idea has potential, such as user sign-ups or partnerships.
3. Evaluate your financial situation
Financial advisers can look at your business and personal finances to determine what hurdles you might face. They can also provide insight into the various financial institutions and their loan programs and the necessary requirements to provide personalized advice on which financing options best suit your business needs and help you create a plan to repay any debt you take on so you can stay profitable in the long run.
If speaking to a financial adviser is not within reach, take time to evaluate your personal credit, which may affect whether you qualify for financing, as well as the rates and terms you receive. Many apps and financial accounts let you check your credit score for free.
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. You’ll also want to keep your credit card balances low, and avoid opening unnecessary credit accounts.
4. Compare different types of loans
Assess your funding options, paying special attention to repayment terms, external factors that might affect when and what you can pay (for example, seasonal lulls), and the advantages and disadvantages of each. For example, if you’re a small business without any revenue, tapping friends and family for financing can result in preferable terms, but it won’t help you build business credit.
Don’t be afraid to shop around and get quotes from various sources. You’re not locked into anything until you sign the paperwork.
5. Apply for a startup loan
When you’ve decided on your loan, it’s time to apply. Gather your financial statements, tax returns, and business licenses. Review the eligibility and application requirements and apply to several lenders or organizations.
If you’re a new business, here a few extra considerations:
- Personal guarantees. Many lenders will ask you to promise they can take your personal property if your business can’t pay back the loan.
- Collateral. Offering something valuable that you own (like equipment, inventory, or property) can make your application stronger.
- Equity financing. Some business owners who don’t have income yet choose to sell a part of their company (to angel investors or venture capitalists) instead of taking a loan.
- Valuation. If you opt to raise funds by selling equity—whether to friends and family or angel investors, or through an equity crowdfunding platform—you’ll need to calculate your startup’s valuation.
Once you receive offers, compare them to determine which is best for your business. At this stage, you may be able to negotiate for better terms.
Read more
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- Understanding Nondeductible Expenses for Business Owners
- Free Cash Flow Yield Definition and Formula
- What Is a Revolving Line of Credit?
- Understanding Business Credit Scores and How They Work
- What Is an Accounting Cycle? Definition and Guide
Startup business loans FAQ
How can I get a loan to open my own business?
Here’s how to get a loan for your business in five steps:
- Calculate how much you need.
- Create a business plan.
- Evaluate your financial situation.
- Compare different types of loans.
- Apply for a startup loan.
Is it possible to get a loan for a startup business?
Yes, there are numerous funding options available for startups, but it might be challenging to secure one if you haven’t established a credit history or track record. Options include traditional bank loans, SBA loans, crowdfunding, and business lines of credit.
Which loan is best for a startup business?
The best loan for a startup depends on your business’s industry, funding needs, credit history, and repayment ability. Options include SBA guaranteed loans, which offer flexible terms and government-backed guarantees, or alternative lenders, which may provide faster, but more expensive funding with less stringent eligibility criteria.
Is it difficult to get a business startup loan?
Getting a business startup loan can be difficult without a proven track record. Lenders typically assess factors such as borrower credit history, business plan, collateral, and industry viability—information startups don’t always have.
Which bank is best for startup business loans?
Some banks that are best for startup business loans include:
- Wells Fargo
- PNC Bank
- Huntington National Bank
- Bank of America
- TD Bank Business
What credit score do you need for a startup business loan?
A good personal credit score—above 670—can improve your chances of qualifying for favorable loan terms and rates. However, alternative lenders and financing options are available to borrowers who don’t meet minimum credit score requirements or who have limited credit history.
*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.
