Did you know that over 500,000 new small businesses get started each month? That’s right — each month, not each year.
If you want to join the ranks of those new businesses (and be successful), you’ll need some startup money. Plenty of business loan options exist to get you the funds you need. But what are the best startup business loans?
In this guide, we’ll give you what you need to know to get your business off the ground. Read on to learn which business startup loans you should pursue!
Home Equity Line of Credit
If you’re a homeowner, tapping into the funds hidden within your home is a great way to fund a new business.
Home equity loans and lines of credit often come with low rates, since they’re backed by your home as collateral. Get a home equity loan if you need a lump sum of cash all at once. If you need a credit line to draw against as needed, get a home equity line of credit instead.
These options only work if you have equity in your property. Basically, you’re borrowing against the amount of your home that you’ve already paid off.
Business Line of Credit
A business line of credit (not to be confused with a business credit card) is a great source of flexible business financing.
This option also allows you to tap into the credit as needed. It’s great for businesses that are just getting off the ground, but don’t always have the profits needed to cover necessary expenses yet.
Traditionally, most business lines of credit are secured with collateral. However, some alternative lenders also offer unsecured credit, so you can choose the option that works best for you.
With secured loans, you’re putting assets, like your home or car, on the line. With an unsecured loan, you might have a higher rate, but you won’t risk any of your own possessions.
Peer-to-Peer Loan
Thanks to the internet, lots of new ways to fund a business have popped up. Peer-to-peer lending lets you sign up online to get matched with the right person or company to give you a loan.
With this option, you can quickly tap into lots of new funding options. Technically, these are personal loans, so keep in mind that your credit score can drop if you don’t pay the loan back on time. You might also need to use personal assets as collateral.
Business Credit Card
A business credit card works in essentially the same way as a personal credit card. They don’t require collateral, and they let you borrow what you need as you need it.
You won’t want to use your business credit card for large startup costs. But for the smaller day-to-day items involved in getting a business going, a business credit card is perfect.
Just try to pay your balance off each month, because the interest rates are high. You can also look for cards that offer better interest rate options, like the BMO Preferred Rate MasterCard.
SBA Loans
The U.S. Small Business Administration (SBA) offers plenty of great loan options for new businesses. One of the best is the Community Advantage loan option.
The SBA helps small businesses get loans from a variety of lenders. They tend to have lower rates than other loans because the government guarantees parts of the loan, to make them less risky for lenders and more affordable for you.
Community Advantage loans are aimed at new businesses in particular. The SBA guarantees a higher percentage of Community Advantage loans, so you can get lower interest rates than with almost any other loan option.
To get a Community Advantage loan, you’ll need to prepare for a longer application process than with most loans. However, the extra time invested is well worth it.
Rollover for Business Startups
The Rollover for Business Startups, or ROBS, allows you to pull funds from your retirement account and invest them in your startup. You won’t need to pay the income taxes, withdrawal fees, or other penalties that usually keep people from tapping their retirement savings.
This technically isn’t a loan, since you aren’t borrowing against your retirement account. Instead, you’ll actually cash out the funds. Still, it’s such a valuable funding opportunity that we couldn’t leave it off this list.
While you can use a ROBS for lots of business funding purposes, you’ll need to have a significant amount of money in your retirement fund to make it worthwhile.
Equipment Loans
If you just need to purchase some big-ticket equipment items to get your business going, an equipment loan can help.
You can buy machines, vehicles, or other equipment that you don’t currently have the funds for. Banks, other lenders, and equipment dealers can all offer equipment loans.
You can also take out an equipment lease as a similar option. However, with a loan, you own the equipment. With a lease, you can either purchase or return the equipment at the end of the lease term (or take out another lease).
Borrow from Personal Networks
Many people avoid the option of borrowing from friends and family members until it’s a last resort. But if you approach it correctly, it can actually become a valuable source of funding.
The startup money you get from family and friends often has better repayment terms than any other loan. They aren’t trying to profit off the loan: they want to see you succeed. Just make sure you document these loans on paper and treat them with professionalism, paying them back on time with a fair interest rate.
Ready to Use the Best Startup Business Loans?
As you can see, you’re not limited when it comes to business loans. The best startup business loans for you depend on where you’re at in the startup process. But with this list, there’s something for your business at every step of the way.
Once you have your startup costs covered, you’ll need to focus on the other aspects of business success. Don’t miss our essential guide to branding here!
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