How to Start a Business

How to Start a Business

Business Funding: Where to Get Financing

Small Business, Small Business Loans

Business Funding: Where to Get Financing

Small Business, Small Business Loans
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Business Funding: Where to Get Financing

So, you’ve come up with the business idea. It fills a need, it has an audience, and you have a detailed business plan to prove it. Now, how are you going to acquire the financing you need to actually get your small business started?

The capital you need to launch, maintain or grow your business can come from a variety of sources, including traditional banks and online alternative lenders. Finding the right funding depends on the strength of your business and your own financial history. To help you find a good fit, we’ve highlighted six of the most common options for small businesses. Once you determine the best fit, there are steps you can take to increase your chances of getting a business loan.

1. Banks

For: Established businesses with collateral and strong credit

Traditional banks are a great starting point and can help you figure out where you stand in terms of qualifying for funding. Even if your business doesn’t have a strong enough track record or enough assets as collateral to qualify for a bank loan, talking to someone at a traditional bank can help you figure out what documents you need and what your best options may be.

Locally owned banks, in particular, are a great resource for small businesses because they often have a strong interest in economic development in the community. In the third quarter of 2016, the Federal Deposit Insurance Corp. found that 43% of small loans to businesses came from community banks.


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2. SBA

For: Businesses who don’t meet traditional banks’ strict lending criteria

The U.S. Small Business Administration offers lenders, mostly traditional banks, a federal guarantee on your loan. This makes it less risky for banks to lend you the funds you need to be successful. In guaranteeing the loans, the SBA also connects you with favorable rates offered by traditional lenders. And unlike most bank loans, you can use an SBA loan to start a business.

» MORE: Bad credit? Where to find business loans

However, the application process isn’t easy, and you can find yourself trapped under a heap of documents while you work through the appropriate forms. Online lender SmartBiz provides a more streamlined SBA application process, originating SBA loans faster than traditional banks.

We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source of startup funding because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • You can get competitive rates and perks, such as 0% interest periods, if you have good credit.

  • NerdWallet recommends borrowing smaller amounts to be repaid quickly.


Compare credit cards with NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source of early funding because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • If you have growing revenue, you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • A microloan is a good option if you have limited revenue and history.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • If you have growing revenue, you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • A microloan is a good option if you have limited revenue and history.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year or more in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year or more in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • Since your business is still young and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your credit score should be at least 579 to qualify.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and a year of business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and a year in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and a year in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

SBA Loan
SMB_SBA_Loan_t



  • As an established business with growing revenue, an SBA loan is a good option if you want low rates.

  • Approval and funding can take longer than other financing sources.


Compare lenders with NerdWallet's loan tool

Term loan
SMB_Term_Loan_t



  • With two years in business and growing revenue, a term loan can offer competitive rates.

  • A term loan is an attractive choice if you want a lump sum paid over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and two years in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Your personal credit score is not a major factor.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • A term loan is an attractive choice if you want a lump sum paid over a set period of time.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • Since most lenders want at least a year in business, you should wait until you reach that milestone to find eligible term loan options.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.

  • We recommend you've been in business for a year to compare line of credit options.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

SBA Loan
SMB_SBA_Loan_t



  • As an established business with growing revenue, an SBA loan is a good option if you want low rates.

  • Approval and funding can take longer than other financing sources.


Compare lenders with NerdWallet's loan tool

Term loan
SMB_Term_Loan_t



  • With two years in business and growing revenue, a term loan can offer competitive rates.

  • A term loan is an attractive choice if you want a lump sum paid over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and two years in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool
Based on your scenario, we don't recommend any financing products for that loan amount. You may be able to find financing for loan amounts less than $50,000.

3. Online alternative lenders

For: People with shaky personal credit, who want fast funding or ease of applying

With traditional banks limiting access to capital, online alternative lenders have seen an increase in popularity. A report by Morgan Stanley predicts they’ll provide 16% of small-business loans by 2020. Online lenders are particularly useful for owners struggling with bad credit or those in need of fast cash. Several of them are able to turn around funding within 24 hours.

Peer-to-peer business lenders are among the alternatives. These lenders cut out the traditional middleman, such as banks, to connect borrowers with individual and institutional investors. The cost of borrowing, however, is much higher; some charge annual percentage rates close to 100%. Still, alternative lenders are an option when a bank says no.

Online business lenders offer a variety of financing options, including term loans, lines of credit and invoice factoring. Take our quiz to find your best options.

4. Crowdfunding

For: Businesses with products that can capture the public’s interest

Crowdfunding sites such as Kickstarter rely on investors to help get an idea or business off the ground, often rewarding them with perks or equity in exchange for cash. Although the popularity of these services has increased in recent years (the SBA even offers an online course in crowdfunding), there are caveats. For one, your product or company has to be intriguing enough to catch the eye of multiple investors. In the case of equity crowdfunding, where investors gain a stake in the company, there are strict securities laws and rules to follow for investors and entrepreneurs alike.

5. Credit unions

For: Members who like a personal touch

Like banks, credit unions offer favorable rates and loans backed by the SBA. But unlike banks, credit unions have increased their small-business lending 60% since 2008, according to the National Association of Federal Credit Unions. You’ll likely have to be a member. But the co-op nature of credit unions often ties them to the community, so you may also reap the benefits of more personal relationships and name recognition.

» MORE: Best loan options for women-owned businesses

6. Small business grants

For: Free financing

Funding that doesn’t need to be repaid is the best funding. Small-business grants offer a way for small-business owners to get established or grow, without having to worry about paying back the funds. Typically offered through nonprofits, government agencies and corporations, some grants focus on specific types of business owners, such as minorities, veterans and women. The downside to free financing is that everybody wants it. It will take a lot of work to find and apply to grants, but time spent searching for free money opportunities could pay off in the long run.

Find and compare small-business loans

NerdWallet has come up with a comparison tool for the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and filtered them by categories that include your revenue and how long you’ve been in business.

Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm.

Updated July 19, 2017.

SMB_industry-guide-largerCTA1

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Where to Find Startup Business Loans 2017

Money is a big worry when you’re starting a small business.

The growth of alternative lending gives established companies a wide range of business loan options. But entrepreneurs might find it hard to get a small-business startup loan. After all, who wants to lend thousands of dollars to a small business that doesn’t even have revenue yet?

“Nobody does a good job of providing financing to startup businesses because it’s the highest risk out there,” says Charles Green, founder of the Small Business Finance Institute. “You may have big ideas and plans in place, but you haven’t launched yet.”


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With these considerations in mind, we’ve rounded up half a dozen of the more proven methods of financing a brand-new business:

Startup business loans: Compare all your options

SBA loans, and microloans from nonprofits

The U.S. Small Business Administration has a microloan program that offers up to $50,000 for small businesses and some not-for-profit child care centers. The average SBA microloan is about $13,000. Here’s a list of providers.

The downside of the microloan is the “micro” part: Funding may not be sufficient for all borrowers.

The SBA’s flagship 7(a) loan program also offers financing that borrowers can use to start businesses. But 7(a) loans are tough to get. They typically go to established businesses that can provide collateral — a physical asset, such as real estate or equipment, that the lender can sell if you default. The qualifications are strict, and even if you qualify, the process can take several months.

» MORE: Best loans for working capital

Microlenders and nonprofit lenders can be a less difficult route, especially if you have shaky finances. Many focus on minority or traditionally disadvantaged small-business owners, as well as small businesses in communities that are struggling economically.

Generally, you’ll get solid loan terms from these lenders, making it possible for you to grow your business and establish better credit. That can help you qualify for other types of financing down the road.


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Friends and family

Perhaps the most common way of financing a new small business is to borrow money from friends or family. Of course, if your credit is bad — and your family and friends know it — you’ll have to persuade them that you’ll be able to pay them back.

In these situations, the potential cost of failure isn’t just financial; it’s personal.

“Business is personal, regardless of what people say,” says David Nilssen, CEO of Guidant Financial, a small-business financing company. “For most people, it’d be difficult to separate the two.”

Trim your list of friends and family to those who understand your plans, and do your best to make certain they’re comfortable with the risks involved.

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Credit cards

Many small-business owners use credit cards for funding. If your credit isn’t stellar, you might be limited to secured credit cards, which typically have higher fees than regular credit cards.

It’s important to remember, however, that credit cards are an expensive way of financing a small business, particularly if you have bad credit. That’s because card issuers determine annual percentage rates based largely on your personal credit scores. And research has shown that small businesses that rely heavily on credit card financing typically fail.

SHOP SMART FOR THE BEST CREDIT CARDS


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Personal loans

Many new small-business owners access financing through personal loans, often via a growing number of online lenders. But like credit cards, personal loans usually have high APRs, especially for bad credit borrowers.

For example, companies such as Peerform and Vouch provide personal loans you could use to start a business. Both lenders have a minimum credit score requirement of 600, but their loans have APRs as high as 30%.

Nilssen says small-business owners should consider personal loans “an option of last resort.”

“Where they can work,” he says, “is when a business just needs a small amount of money for things like … early-stage production or buying equipment.”


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Crowdfunding

Crowdfunding has become a popular way for small businesses to raise money, thanks to such sites as Kickstarter and Indiegogo, which let you solicit funds through online campaigns. Instead of paying back your donors, you give them gifts, which is why this system is also called rewards crowdfunding.

New avenues also are opening up for equity crowdfunding, in which you tap a public pool of investors who agree to finance your small business in exchange for equity ownership. This became an even broader option recently with new securities regulations that allow small-business owners to reach out to mom-and-pop investors, not just accredited investors.

Crowdfunding is good for the entrepreneur “who has a product and wants to test the market and validate the opportunity,” Nilssen says. “No credit necessary.”

» MORE: Best loans for minority-owned businesses


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Grants

Grants from private foundations and government agencies are another way to raise startup funds for your small business. They’re not always easy to get, but free capital might be worth the hard work for some new businesses.

For example, if you served in the U.S. military, you can access small-business grants for veterans. There are also small-business grants for women.


Startup business loans: Compare your options

Funding sourcesGood option if: More info
Microloans and nonprofitsYou need a small startup loan.
Find lenders at NerdWallet
Family and friendsYou have friends and relations who are comfortable with the risk.
How-to tips from NerdWallet
Credit cardsYou can keep card use to a minimum.
Find cards at NerdWallet

Personal loansYou have a personal credit score of 600+.
Find loans at NerdWallet
CrowdfundingYou're looking to test the market.
See options at NerdWallet

GrantsYou're willing to put in hard work for free capital.
Find grants at NerdWallet

Find and compare small-business loans

NerdWallet’s interactive small-business loans tool allows you to find financing that meets your individual goals. Sort by the age of your business, your credit score and the amount of money you need. Lenders were chosen based on factors including trustworthiness and user experience.

Updated July 26, 2017.

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