How to Get a Loan to Start a Business
The Small Business Administration, private investors, crowdfunders, family, and friends are all tried-and-true options for financing your startup business. Each have their pros and cons, so make sure to explore every possibility! If youâre interested in a more traditional loan to get working capital and grow your business, we have three small business startup loans that can help you get the cash you need. These three productsâequipment financing, business credit cards, and the credit line builderâare great options if you have a strong personal credit score and are looking to build up your business credit, too.
6 months to 4 years
7.9 - 19.9%
As little as 2 weeks
As you might guess, many young and new businesses can qualify for a small business startup loan.
Since you wonât have a lot of revenue history, the most important factor to lenders will be your personal credit score:
The higher the score, the better your chances of qualifying.
**Based on past Fundera customers.
Just starting up and already feeling lost?
The world of business financing can be confusingâespecially for first-time business owners just striking it out on their own.
But not to worry. Funderaâs loan marketplace actually offers three kinds of small business startup loans for you to choose from.
Check them out and see what fits your business best.
Equipment financing is a small business startup loan that uses the equipment youâre purchasing as collateral.
That lets your lender take a slightly higher riskâby investing in a fresh, untested businessâwhile charging a lower interest rate.
Plus, youâll be able to pay off the cost of that piece of equipment as it generates revenue for your business.
Applying for Startup Equipment Financing
Youâll also need a great credit score with startup equipment financing: 680 or higher.
And to submit an application for startup equipment financing, youâll typically need a vendor quote for your equipment, a statement of how youâll use that equipment, and a detailed credit report.
One bonus benefit: you can use the depreciation of the equipment as a tax benefit for several years!
Like a consumer credit card, a business credit card gives you access to ârevolvingâ credit to draw fromâas much as you need, whenever you need it, without a hassle.
Youâll be given a maximum amount, an interest rate, and most likely a rewards system you can use to gain points, miles, or cash back in return for your purchases.
Why Use a Business Credit Card?
Business credit cards come with plenty of advantages for small business owners just starting up.
You can separate your personal and business finances to start building up your business credit, make online purchases with ease, and rest easy with a cash flow cushion youâll have access to in case of emergencies.
Also, your business credit cardâs rewards can add a lot of value, often giving you money back for travel, restaurants, gas, office supplies, and a number of other expenses.
The Best Way to Use a Business Credit Card
With that said, itâs important to spend wisely with a business credit card.
Even though a credit card is a convenient small business startup loans option, donât go overboard on your spending: making late payments or maintaining a high utilization can hurt your credit score.
This is one of the less traditional startup loan products available on our marketplace, but itâs especially useful for new business owners who are careful with their spending.
With the credit line builder, youâll work with a financing company to apply for multiple business credit cards at onceâsaving yourself lots of time and energy.
Hereâs the general idea:
Your approved credit amount will be the combined maximum amount of all the credit cards you qualify for, and youâll then have access to a set of credit cards you can use to make purchases and quickly build business credit.
A Few Things to Keep In Mind
Itâs important not to treat the credit line builder like a business line of credit, though.
Youâll need to be careful not to spend too much with any of the business credit cards you use, since late payments and a high utilization across multiple cards can seriously damage your credit score.
Instead, focus on spending sensibly: use the credit line builder like a tool, not a crutch.
Finally, note that the credit line builder requires a personal credit score of over 700 to qualify for.
The interest rates for equipment financing fluctuate, but an average rate for startup equipment financing is about 20%.
Though a bit costly, this financing option will still help you offset some of those initial startup costs.
An Example of Startup Equipment Financing
If the equipment youâd like to purchase costs $20,000 and youâre getting 100% of that equipment financedâat 20% interestâyouâll be paying back a total of $24,000.
And loan terms are usually based on the expected life of that collateral equipment.
Assuming the startup loan term is 5 years, youâll be making monthly payments of $400â¦
Not too bad for a vital piece of equipment for your startup business.
APRs for business credit cards generally fall between 13 - 20%, although you should also keep an eye out for foreign transaction fees, late fees, balance transfer fees, and annual fees youâll pay to renew the card each year.
No-Interest Loans with Business Credit Cards
Many business credit cards come with 0% introductory APRs for 9 months or a year, however, essentially letting you take out interest-free loans.
You can and should take advantage of this to make smart purchases for your business, but take care not to lose track of when that grace period ends or youâll pay the price.
Watch for Changing Interest Rates & Due Dates
Also, youâll want to keep an eye on your business credit cardâs interest rate, as it might be subject to change.
Youâll generally be given a warning if it fluctuates, but in the end itâs on you to monitor.
Most importantly, as with any small business loan, donât delay on your credit card payments unless itâs unavoidable.
The costs for the credit line builder are similar to those for business credit cards, with one big difference.
Being Extra Careful With Multiple Credit Cards
Since youâre getting multiple business credit cards at once, youâll need to be extra cautious when it comes to credit limits and repayments.
One late payment with a business credit card could lower your credit score a bit, but habitually making late payments across several cards will have a much harsher effect.
Build Your Business Credit
If you keep your spending in check and make your payments on time, though, youâll benefit from the fast credit building and access to capital that the credit line builder provides.
Youâll also have to pay the financing company a one-time origination fee calculated as a percentage of your approved amount, in return for the business credit card applications they strategically filed for you.