The 5 Best Business Loans for Startups

Sarah Pritzker
All you need to know about getting funding for your startup, along with an in-depth comparison of the 5 best business startup loans.
When you kick off a new startup idea, you need capital, which may come from a business startup loan, a specific type of business loan. Before you find funding, you need to know what your costs will be. Consider your initial costs such as office premises, plant and production equipment, legal fees, and office furniture.

Items that you own are classified as assets and can be used as collateral for your startup loans.

It’s important to include your ongoing expenses for at least the first 6 months of operation until your cashflow gets going. Expenses are areas you have to pay for but don’t get to keep. These cover things like payroll, rent, inventory, marketing, and insurance. Remember to count your business loan repayments among your expenses, too.

1. Lendio

Lendio is a lender marketplace that presents pre-approved loan options from a number of providers. Lendio offers business loans for startups as well as business credit cards, SBA government-backed loans, and term loans that are secured on your business or personal collateral. Since it’s a business loan aggregator, it’s difficult to say what rates you’ll get, as that depends on the specific loan provider.

Key Features:

  • Great customer service with a personal account manager who’ll help you get the most suitable type of business loan for your startup
  • Personal credit score of 680 or higher is needed for most startups
  • Loan amounts available from Lendio range from $500 to $750,000, depending on the type of loan you choose and your credit rating
  • You may have to put up your new equipment as collateral for a business startup loan
  • Repayment terms stretch from revolving monthly credit for a business credit card to 25 years for some loans
  • APR can be between Prime+ and 17%, although SBA loans have rates of 6-9%
  • It takes between 2 weeks and 2 months to get your money

Read the full Lendio review

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2. Kabbage

Kabbage is a lending platform that provides an open business line of credit for startups and small business owners. Once you've been approved for a line of credit, you can withdraw loans whenever you’d like up to your total credit limit, but you’ll only pay interest on the money you actually borrow. Although you need to show one year in business, you can use a Kabbage loan in the early stages of your startup to access extra cash whenever you need it to keep things going while you get on your feet.

Key Features:

  • Credit lines can reach up to $150,000 depending on your business’ health, although sometimes you’ll be asked for your personal credit history as well
  • Repayments are monthly with terms of either 6 or 12 months
  • You won’t generally be asked to post any collateral on the loan, but you will need to give a personal guarantee for the amount you borrow and sometimes, Kabbage will post a general lien on your business assets
  • You need to have a business history of at least one year and revenues of $50,000 annually to qualify
  • Kabbage doesn’t use a traditional APR rate; Instead, you'll be charged a monthly fee for every month while you repay the loan of between 1% and 10%

Read the full Kabbage review

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3. Fundbox

Fundbox is a loan platform that lends directly to small businesses using invoice factoring. FundBox advances you the money to cover your bills based on unpaid invoices that your clients haven't yet paid to close the circle on your cash flow. While you need to already have a business set up and some transactions completed to get FundBox funding, there is no minimum number of months in business.

Key features:

  • Loan periods of 12 or 24 weeks
  • FundBox provides loans of $1,000 and up to $100,000 using invoice financing
  • Repayments are made weekly, with no penalties for early repayment
  • Rather than charging traditional APR rates, FundBox charges a flat fee every week which begins at 4.66% of your loan amount
  • Once your application has been approved, you can request an invoice to be paid in the morning and receive the amount in your bank account on the next working day
  • Qualification is based on your business health, not on your personal credit rating
  • You’ll need to already have a business bank account and connect it to the FundBox platform so that it can assess your business health before approving you for loans and telling you your fees

Read the full Fundbox review

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4. LendingTree

LendingTree is an online business loans marketplace that aggregates and presents pre-approved loan offers from multiple loan providers. With LendingTree, you can access multiple different types of loans suitable for startups, including SBA government loans, a business line of credit and equipment financing loans, long and short-term loans for startups, and invoice factoring.

Key features:

  • Many different types of loans so that you can find the one that suits your startup
  • Repayment periods stretch from revolving lines of credit to long-term startup loans with 10-year terms
  • APR begins at 5%
  • You’ll need to share your personal credit rating as well as your business’ legal documents, business plan, and your business (and possibly also personal) tax returns

Read the full LendingTree business loans review

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5. Torro

Torro is a small online marketplace for loan providers that directly targets startups and new business ideas. It offers automated approval and manual underwriting for your startup loan. Startup business loans available include collateral-free loans, equipment financing, and working capital loans.

Key features:

  • Loan amounts begin at $5,000 and go up to $575,000.
  • APR rates vary depending on the specific loan provider, but Torro guarantees that they won’t exceed 36%
  • Repayment periods also vary depending on the lender
  • Startups can qualify without any trading history by showing a business and possibly also a marketing plan, legal documents relating to the inception of your business, references, and a website and/or verifiable business address
  • You'll be asked for your business credit rating if you have any credit yet and probably also your personal credit score, which should be over 650
  • Depending on the loan you take, you might not need to provide any collateral

Read the full Torro review

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If you've already done research on how to get started, what your market looks like and what you plan to do with your business, now's the time to figure out how much it will cost and how you’re going to pay for it.  Every business requires spending before even opening the doors on the first day.  Along with these expenses, you need to estimate your ongoing costs of operation. Cost estimates will be your basis for setting prices and rates, analyzing your profitability, and applying for loans, so it's important not to overlook anything.

Best Business Loans for Startups: What You Need to Know

How much money will it take to start your new business? Many entrepreneurs underestimate the cost of starting their business, but with the right numbers you can attract investors, get bank funding, spend in the right places, and know when to expect a profit out of your hard work. If you've already done research on how to get started, what your market looks like and what you plan to do with your business, now's the time to figure out how much it will cost and how you’re going to pay for it.  Every business requires spending before even opening the doors on the first day.  Along with these expenses, you need to estimate your ongoing costs of operation. Cost estimates will be your basis for setting prices and rates, analyzing your profitability, and applying for loans, so it's important not to overlook anything.

Know Your Initial Costs

Your startup costs are purchases you make and fees you pay to get your business up and running. You'll encounter different costs depending on what type of business you're running. Brick-and-mortar stores are very different than service providers or online stores, so talk to others in the industry for their experiences. There are several types of small business costs:

  • One-time costs, like down-payments, office equipment and furnishings, and building a website
  • Ongoing costs include payments you have to address on a regular basis, like rent, loan payments, utilities, and salaries
  • Variable costs, such as emergency repairs, marketing campaigns, and legal fees

Once you have a list of what you expect to spend money on,  do your best to find out how much these things actually cost. Some expenses, like rent, will be easy to determine, but you may have to estimate some other costs. Look online and keep communication open with other people working in your industry. 

Understand Your Assets

An asset is a tangible resource belonging to your business that still has value after a year or more. Some assets increase in value over time and some decrease over time, and most require an initial investment.

Examples of assets include:

  • Cash: The money your business has in the bank, usually representing the owner's personal investment in the company
  • Land and buildings: Any property the business owns and from which it operates
  • Improvements: Money spent fixing up the location, such as painting, putting in new flooring, repaving the parking lot, or doing interior redecorating
  • Office furniture: Desks, tables, chairs, shelving, and small appliances fall into this category
  • Equipment: These costs vary depending on the type of business you’re starting. For example, operating a restaurant requires investing in more large equipment than running a retail store.
  • Starting inventory: If your business sells a product, you should include the money you need to spend on stocking your initial inventory.

Money brought into the business by investors or through loans also counts as an asset. However, since you have to make payments on these sources of financing, they also count as expenses and should be categorized along with similar types of payments. Knowing what assets your business already has can make it easier to take out a business loan or pitch to investors later in the game. Once you're up an running, it can be wise to get an appraisal of your assets for lenders who will want to see that you have the means to put down collateral. 

What Startup Cost Estimates Do For You

The sum of your startup and recurring costs tells you approximately how much money you need to get your business off the ground. Once you have this estimate, start planning how you’re going to finance the start of your business. You may discover you need a business loan to stay afloat during the initial phases of startup, and this additional cost should be factored into your projections. Using financial planning software or working with a financial advisor can help you keep everything straight. Expect to take a loss at the start, but keep a careful eye on cash flow to ensure the overall trend progresses in an upward direction as your business starts to grow.

Sarah Pritzker
Sarah Pritzker is a content writer with years of experience and a keen interest in the vast world of online consumer products. She enjoys helping readers make sense of the options on the market in a variety of fields.