Securing extra capital for the continued maintenance or growth of your small business can be difficult, especially if you don’t know where the loans come from. Many people turn to startup loans so that they can get their business off the ground.
Your chances of success usually depend on your financial health and where you apply for the loan.
For example, SBA-approved lenders are some of the most notable loan providers but this means they also have the highest standards and the most applicants, so getting a loan is harder for the individual businessperson.
With that in mind, let’s take a look at where you can apply for your startup loans and some of the different types of loans each institution offers.
The Small Business Administration
The Small Business Administration, or the SBA, is a government agency that guarantees loans provided by successful lenders. Since lenders are backed by the U.S govt., they have much less risk when offering loans.
This means they can offer more cash for loans and offer generous repayment periods when compared to most lenders. Because of that, SBA loans tend to have higher acceptance requirements than others, like a 500+ or even 600+ credit score and six figures in annual revenue.
These high requirements alienate startups, so the SBA isn’t the best source of startup loans for most people. There’s also a lot of red tape involved since you’re working with the U.S govt.
If you can qualify, however, your business will be in a much better position than businesses borrowing from other lenders.
SBA 7(a) Loan
Through the SBA, you can secure many different types of loans. A popular one is the SBA 7(a) loan. If you qualify, this program can offer you up to $5 million, so it’s the best option for financial heavy-hitters.
Approximately 20% of 7(a) loan payouts were awarded to businesses that were just getting started.
The SBA offers an Express program that will get you up to $350,000 in return for a speedier process, because SBA loans can take a long while to bear fruit, so keep that in mind if time is of the essence.
Since they have a high acceptance standard, this loan is best when you’re an entrepreneur with acceptable credit who is starting a business but it isn’t their first business venture.
If you have bona fides in the industry you’re starting up in, then the lenders will be all the more confident to let you borrow their cash. The same applies if you’re buying into an established franchise or taking over a business that’s already successful.
SBA 504 Loan
This SBA loan is used to finance the purchase of fixed assets, that being equipment, real estate, or machinery.
If you have a lot of business expenses covered but you need a hand acquiring a business property or business machinery that allows you to provide a product or service, then an SBA 504 loan is best for you.
You can borrow as much as $5 million again as long as your net worth isn’t $15 million and you earn less than $5 million after taxes.
SBA Export Loans
If your business has international ambitions, check out the SBA’s available export loans.
Their SBA International Trade Loan is similar to the SBA 7(a) and is intended to be used with equipment and facilities that facilitate cross-border trade. If export expansion is on the horizon for your business, you should check if you qualify for this loan.
The fast-track option for export loans is the SBA Export Express Loan Program. If you only need a small loan and want it fast, this option is versatile and can be offered as a term loan or a line of credit.
SBA loans are characteristically strict in how they payout, so the Export Express Loan is one of the simplest and most flexible of their loan offerings.
As a government agency, the SBA works with many non-profit organizations and community development institutions to offer smaller, localized loans. These are called microloans and have a relatively small loan amount of $50,000.
When loans get awarded, many applicants only accept approximately $20,000. These are term loans that give you, at most, six years to pay them back. They can be used for almost anything, from standard working capital to business-specific purchases for equipment or supplies.
If you like the look of SBA microloans but can’t or don’t want to go through the time and effort of dealing with the SBA, then you can secure microloans from other lenders.
Many non-profit organizations can offer you great loans that can breathe life into your business. Check out some of them below:
Based in Texas, LiftFund is a microlender that covers much of the Southern USA. If you’re a small business in the South and you’re looking for a hand, one of their microloans can help you out. Most of them concern the acquisition of equipment and other business supplies.
Their loans can also be a stepping stone towards a healthier credit score, which can help you score more loans in the future, making them an ideal provider for your first loan.
Grameen American is the American branch of the international Grameen Foundation that focuses on financing poor communities. They pioneered a lending system that incentivized women to band together and apply for loans.
They also have financial training programs after which you can receive a small loan of $1,500 to build your business.
Accion is an international non-profit that seeks to provide economic opportunities for those that need them. Their Accion U.S Network has its headquarters in New York and oversees member offices Accion East, Accion Chicago, Accion New Mexico, and Accion San Diego, so one of those should be your first stop if you’re nearby.
Loans can be as little as $300 or as much as $250,000 depending on your needs and financial capability.
Based in California, the Opportunity Fund offers both microloans and financial literacy education to prospective business owners in the state.
They have recently been acquired by Accion, allowing them to offer more assistance to their applicants. Loans can be between $5,000 to $100,000 with interest rates below six percent.
Besides the SBA and other micro-lenders, other institutions can offer you loans through business credit cards. They can be a great alternative to a startup business loan that fulfills a lot of the same functions while being easier to secure.
To qualify, you’ll need a personal credit score and your combined income, and they may want a personal guarantee that you’ll be liable for repayment if you’re an LLC.
Everybody knows that banks offer credit cards so, if you’re in your bank’s good graces then you should look into securing a business credit card with them.
Credit can be secured or unsecured depending on the bank and the schemes you opt for, but we’d recommend you minimize risk to you by opting for unsecured loans and seeking a loan based on your credit score.
Credit unions are handy bank alternatives that can work for you if you’re a member of one. The loans they provide are smaller than banks but they’re often cheaper than other bank alternatives, like for-profit loan companies.
Startup loans don’t need to come from accredited institutions. It doesn’t matter where they come from as long as you get the business off the ground. Personal funding can come in many different forms, here are a few.
Personal Credit Cards
Personal credit cards can work if you haven’t got the financial health to qualify for a business credit card or any of the above loans.
You need to be responsible when using these (and any personal options) since the liability is all on you. Pay bills on time to keep the card providers and your credit score happy.
If you’re Internet-savvy and your product or service can generate hype, you can try crowdfunding the business.
This puts a lot of responsibility on your shoulders, however, as you’ll be expected to deliver and you can have hundreds, maybe thousands of people watching you and waiting for your success.
On a smaller scale, you can petition your family and friends to help fund your business. Introducing money to your friendships is a dangerous game, so there needs to be a lot of mutual trust between you and your friend.