Small Business Loans - Compare Loan Types and Start Your Application (2024)

FAQs

What type of loan is best for starting a business? ›

A startup business loan is a type of financing that's accessible to businesses with limited—or no—business or credit history. While the most common startup loans are term loans or U.S. Small Business Administration (SBA) loans, startups may also opt for business credit cards or asset-based financing.

There's no industry-wide credit score requirement for small business loans. Still, a higher credit score of 700 or above generally means you'll be eligible for funding with more attractive terms.

SBA-qualified lenders usually set their own criteria when assessing your eligibility. Most lenders will require a minimum FICO score of 620 or higher for their SBA Loans.

How much of a business loan you can get depends on your business's annual gross sales, creditworthiness, current debts, the type of financing, and the chosen lender. In general, lenders will only provide loans up to 10% to 30% of your annual revenue to ensure you have the means for repayment.

The U.S. Small Business Administration (SBA) has several programs to help finance small business loans. Many SBA loan programs combine business coaching and technical assistance, as well as access to financing, on more flexible terms. One example is the 7 (a) Loan Program, SBA's most widely-used loan guarantee program.

The loan is backed by the federal government. That means banks are more likely to loan to riskier companies — like startups — than they might otherwise.

What is an SBA 7 a loan? ›

The 7(a) Loan Program, SBA's primary business loan program, provides loan guaranties to lenders that allow them to provide financial help for small businesses with special requirements. 7(a) loans can be used for: Acquiring, refinancing, or improving real estate and buildings.

It's important to note that all SBA loans require some form of collateral from the borrower. Lenders of SBA loans need to meet the administration's minimum requirements, but make final small business loan collateral determinations on a case-by-case basis.

Depending on a variety of factors, loan offers may require collateral (or a high interest rate) if the bank deems an applicant's profile as risky. These requirements—collateral and/or a high interest rate—may strain a business.

If you have good credit and can meet the lender's eligibility guidelines, getting a business loan with an LLC can often be easy. But new businesses and businesses with limited revenue may have difficulty getting approved, especially with traditional banks and credit unions.

Some large, national banks like Bank of America, U.S. Bank and Wells Fargo offer certain loan options for companies with less than two years in business. In general, however, online and nonprofit lenders are more likely to offer startup business loans.

Not all lenders provide startup loans. You may not have much success with traditional lenders like banks and credit unions, though a few work with new businesses. New business owners who need startup funding have options. However, startups don't always qualify for the maximum amount offered by lenders.