Small Business Startup Loans: Comparisons, Considerations, and Strong Applications

Crowdfunding

As technology and social media continue to evolve, crowdfunding has emerged as a viable and increasingly popular funding option for startups. Unlike traditional loans or lines of credit, crowdfunding lets entrepreneurs raise capital directly from a wide audience—often without giving up control or incurring debt.

A major turning point came in 2015 when the U.S. Securities and Exchange Commission (SEC) approved Title III of the JOBS Act. This legislation changed the game for small businesses by allowing them to raise up to $5 million within a rolling 12-month period through equity crowdfunding (SEC.gov).

Before Title III, startups could only raise equity from accredited investors—those with a net worth of at least $1 million or annual income above $200,000. Now, thanks to this rule change, both accredited and non-accredited investors can participate in startup equity offerings through platforms like StartEngine, Republic, and WeFunder. This shift has democratized startup investing and created new capital pathways for founders.

That said, not all crowdfunding involves equity. Some platforms—such as Kickstarter and Indiegogo—follow a rewards-based or donation-based model, where backers contribute funds in exchange for early access to products, perks, or simply to support a cause. This type of crowdfunding eliminates the complexity of equity sharing while still providing startups with valuable early funding and community validation.

Stat to Know: Crowdfunding campaigns raised over $17.2 billion globally in 2023, with equity crowdfunding accounting for nearly $2 billion of that total (Statista).

Equipment Loans for Startup Businesses

When launching a new business, founders often think about funding basic operations like payroll or rent—but equipment costs can be one of the most significant and overlooked startup expenses. Whether it’s commercial kitchen appliances, medical devices, construction machinery, or IT hardware, many startups rely on specialized tools to deliver their product or service.

That’s where equipment loans, also known as equipment financing, come into play. These loans are specifically designed to help startups purchase the physical equipment they need to operate. What makes equipment financing unique is that the equipment itself acts as collateral—a built-in guarantee that reduces the lender’s risk. This structure often makes it much easier for early-stage businesses to qualify, even without a long credit history.

Government-backed loans

Government-backed loans are funding solutions designed specifically to help startups and small businesses access capital when traditional lenders may consider them too risky. These loans are partially guaranteed by government agencies, which reduces the risk for lenders and increases the chances of approval for early-stage businesses.

In the United States, the primary option is the Small Business Administration (SBA) loan program. SBA loans don’t come directly from the government—the funds are provided by participating lenders (like banks or credit unions), while the SBA guarantees up to 85% of the loan in case of borrower default. This guarantee makes lenders more willing to work with businesses that don’t meet conventional loan criteria.

In Canada, the equivalent program is the Canada Small Business Financing Loan (CSBFL). This initiative, managed by Innovation, Science and Economic Development Canada, allows startups to borrow up to $1 million, with the government guaranteeing up to 85% of the loan value (source). The CSBFL covers costs such as purchasing or improving land, equipment, or leasehold improvements—but not working capital.

Small Business Administration (SBA) Loans

SBA loans, (like 7(a) loans) are government-backed lending products specifically designed to support small businesses. These loans are issued by banks and other approved lenders but partially guaranteed by the U.S. Small Business Administration (SBA), which helps reduce lender risk and increase access to capital for business owners who may not qualify for traditional financing.

The key thing to understand about SBA loans is that they’re intended for long-term growth, not quick cash. With repayment terms of up to 10–25 years, they’re ideal for businesses that are building a stable foundation and have a clear long-term plan in place.

To qualify for the SBA 7(a) loan program, your startup must meet the following criteria:

• Operate for profit
• Physically located and operating within the U.S. or its territories
• Majority-owned by U.S. citizens, nationals, or lawful permanent residents
• Demonstrate creditworthiness and that you’ve exhausted alternative financing options, including personal assets
• Fall within the SBA standards for size and accepted industries

While SBA 7(a) loans offer favorable interest rates and longer terms, they aren’t always startup-friendly. The application process can be intensive, and startups with no operating history may struggle to meet lender requirements .

Canada Small Business Financing Loan (CSBFL) Program

The Canada Small Business Financing Loan (CSBFL) is a government-backed program that helps Canadian small businesses access funding to purchase or improve essential business assets. Managed by Innovation, Science and Economic Development Canada (ISED), the program partners with banks and credit unions across the country to reduce lender risk and broaden access to capital for startups and growing companies.

The CSBFL is designed specifically for capital-intensive investments like equipment and real estate—not for everyday operating expenses. Here’s a breakdown of the program’s most important features, as outlined by the Government of Canada (source):

• Maximum loan amount:
  • Up to $1 million total
  • Of that, $500,000 can be used for equipment and leasehold improvements
  • A new allowance of up to $150,000 is eligible for working capital and intangible assets (e.g., patents, software)
• Eligible businesses:
  • Must have annual gross revenues under $10 million
  • Must be operating for-profit in Canada
  • Some industries—such as farming, not-for-profits, and charitable organizations—are ineligible
• Government guarantee:
  • The Canadian government guarantees up to 85% of the loan, reducing lender risk and improving approval chances
• Repayment terms:
  • Term loans: Up to 15 years
  • Line of credit: Up to 5 years
• Use of funds:
  • Eligible expenses include:
    • Equipment purchases
    • Commercial real estate acquisition
    • Renovations or leasehold improvements
    • Intangible assets (e.g., intellectual property, software licenses)
    • Working capital (through the line of credit)

Equity Financing

If you’ve ever watched Shark Tank or Dragons’ Den, you’ve seen equity financing in action. This form of funding involves raising money by offering investors an ownership stake in your company. For example, if your startup is valued at $1 million and you raise $100,000 through equity financing, you might offer the investor a 10% share in the business.

One of the biggest advantages of equity financing is that it brings in strategic partners who are financially and emotionally invested in your success. These investors often contribute more than just capital—they may offer mentorship, industry connections, and business expertise. Unlike loans, equity financing doesn’t need to be repaid if your business fails, making it less risky from a cash flow standpoint.

However, giving up equity means giving up a degree of control. Investors typically want influence over business decisions, especially if they’ve contributed a significant sum. This shift can be difficult for founders who have built their business independently and are used to making all the decisions. In some cases, disagreements over company direction or operations can cause friction between founders and shareholders.

“Equity financing is more than just selling a piece of your company—it’s choosing a long-term partner. Be selective. It’s easier to get in than to get out,” -Maya Lin, Startup Advisor and former VC at Peak Ventures.

Venture Capitalists (VCs)

Venture capital financing is typically pursued by high-growth startups that are developing innovative products or technologies with the potential for significant market disruption. These businesses often don’t yet qualify for traditional loans due to limited revenue or lack of collateral, but they attract venture capitalists (VCs) because of their growth potential and scalability.

In exchange for capital, VCs receive equity in the company, meaning they become partial owners. But unlike typical investors, venture capitalists often play a hands-on role in the business. Along with funding, they bring deep industry knowledge, access to networks, and strategic mentorship that can help startups scale more quickly and avoid early-stage pitfalls.

The trade-off? Startups must give up ownership and control, sometimes including board seats or decision-making influence. VCs also set high expectations for growth, performance, and eventual exit—often via acquisition or IPO—within a 5- to 10-year window.

Fast Fact: In 2023, global venture capital funding totaled $345 billion, with early-stage startups accounting for nearly one-third of the deals, according to Crunchbase (source).

Angel Investors

Angel investors are high-net-worth individuals who invest their personal funds into early-stage startups—typically in exchange for convertible debt or ownership equity. They often step in at the pre-seed or seed stage, when businesses are too young or unproven to attract venture capital or qualify for traditional loans.

What sets angel investors apart is their willingness to take on more risk than institutional investors. Many angels are entrepreneurs themselves or have deep industry experience, and they see their investment not just as a financial opportunity but as a way to support innovation and mentor emerging founders. In addition to capital, they often provide strategic advice, introductions to other investors, and operational guidance—which can be especially valuable for first-time founders.

However, like all equity-based funding, accepting money from an angel investor means giving up a portion of your company, and depending on the investor’s level of involvement, potentially some decision-making power as well.

Fast Fact: In the U.S., angel investors funded over 70,000 startups in 2023, with the average deal size ranging from $25,000 to $100,000 per investor, according to the Angel Capital Association (ACA).

Commercial Bank Loans and Business Lines of Credit

Commercial bank loans and business lines of credit are common forms of debt financing for startups. In both cases, you’re borrowing money with the obligation to repay it over time—with interest and often additional fees. A business loan (such as a working capital loan) typically provides a lump sum upfront, while a business line of credit gives you flexible access to funds that you can draw from as needed, up to a predetermined limit.

Securing financing from a traditional bank can be advantageous because banks usually offer the lowest interest rates and most favorable repayment terms. However, qualifying for these terms is notoriously difficult—especially for early-stage startups. Most traditional banks require a personal credit score of 680 or higher, at least two to three years of business history, and accountant-prepared financial statements that show profitability or a well-substantiated path to profitability.

Startups may also need to decide between secured and unsecured loans. A secured loan requires collateral, such as business equipment or personal assets, which can improve your chances of approval and reduce your interest rate. An unsecured loan, while avoiding the need for collateral, is harder to obtain and typically comes with higher rates due to the increased risk to the lender.

For founders who don’t meet these strict bank requirements, alternative lenders and small business-focused institutions may offer more accessible funding. These lenders often require only six months in business, $50,000 in annual revenue, and a personal credit score of around 600. However, their loans usually come with higher rates and shorter terms. It’s also important to consider the timeline—bank loans and lines of credit can take weeks or even months to finalize, often involving extensive paperwork and underwriting.

Business Credit Cards

When traditional financing options fall short, business credit cards can serve as a flexible stopgap for startups needing to cover short-term expenses. While relying on credit shouldn’t be a first-choice strategy, a well-managed business credit card can offer convenience, working capital, and even rewards or cashback—all without the paperwork of a loan application.

The key, however, is disciplined balance management. Overspending or only making minimum payments can lead to high-interest debt that snowballs quickly. Used wisely, business credit cards can help you build credit history, smooth out cash flow gaps, and take advantage of grace periods and expense tracking.

Personal Financing

In the early stages of building a startup, much of the business’s success depends on what the founder can personally contribute—financially, emotionally, and strategically. If traditional business loans are out of reach, personal financing can be an accessible alternative. This typically involves using personal savings, credit cards, or applying for a personal loan to inject capital into the business.

For entrepreneurs with strong credit histories and high credit scores, personal loans can offer a faster and simpler path to funding than business-specific loans. Approval is usually based on your income, debt-to-income ratio, and creditworthiness, rather than the business’s financials. This can be particularly helpful for startups with no established revenue or limited time in operation.

That said, personal financing comes with significant risk. Unlike business debt, which may be tied to your company’s assets, personal loans are your sole responsibility. If the business fails, you’re still legally obligated to repay the loan—potentially putting your credit score, savings, or personal assets at risk.

Factors to Consider When Choosing a Small Business Lender

1. Short-Term and Long-Term Funding Needs

• Think beyond the immediate. You may need funds now for payroll, inventory, equipment, or materials, but it’s just as important to plan for future growth.
• Choose a lender that can scale with your business or offer multiple funding solutions over time.

2. The Total Amount of Funding Required

• Create a clear funding plan that outlines exactly how much you need now—and how much you might need in the next 12–24 months.
• Different lenders specialize in different deal sizes. Some cap out at $100K, while others can fund millions.

3. Your Current Creditworthiness

• Your business credit score and often your personal credit score will influence your eligibility and the terms you’re offered, though some options look at only one or the other.
• If your scores are low, consider alternative lenders or government-backed programs that cater to newer or riskier businesses.

4. Your Debt-to-Income Ratio (DTI)

• DTI is a major factor in how much funding a lender will approve. It shows how well you can manage current obligations while taking on new debt.

Tip: Aim for a DTI below 40% to improve your chances of approval and secure better terms.

Debt-to-Income Ratio (DTI) = Total Monthly Debt Payments ÷ Gross Monthly Income

• Total Monthly Debt: Includes all recurring loan payments (business and personal), credit card minimums, lease payments, etc.
• Gross Monthly Income: Your total income before taxes and deductions

5. Documentation You’ll Need

The documentation you can provide often determines which financing options are available to you. For example, if you’ve only been operating for a year, you likely won’t qualify for a traditional bank loan that requires three years of CPA-prepared financials. Prepare the following for any application:

• Business Plan
• Financial statements and projections (ideally CPA-prepared; provide 2-3 years of past statements)
• Articles of Incorporation or business registration documents
• Business contact information
• Government-issued photo ID
• Business bank statements

Tip: Organizing these documents in advance speeds up the process and shows lenders you’re serious.

6. Key Loan Characteristics to Evaluate

Before accepting any offer, review the fine print of your loan agreement, including:

• Interest rate (fixed vs. variable)
• Repayment terms (weekly, monthly, deferred?)
• Loan amount vs. what you actually need
• What happens if you miss a payment—fees, penalties, or default conditions
• Your contingency plan if your cash flow takes a hit

7. Important Lender Characteristics

Not all lenders are created equal. Evaluate them not just on rates—but on reliability and relationship potential:

• Do they want a long-term partnership? Will they support future funding needs?
• Customer service quality—are they responsive and transparent during the application process?
• Reputation and track record—have they helped businesses like yours?
• Flexibility in tough times—will they work with you if you miss a payment?

8. Recommendations from Your Network

Tap into your professional network. Ask fellow founders, CFOs, advisors, or mentors:

• Who they’ve worked with
• Which lenders offered fair terms and strong support

If they’re willing to make an introduction on your behalf

Tips to Improve the Chances of Getting a Small Business Start-Up Loan

1.  Apply Early

• Loan approval takes time, especially through government programs or traditional banks.
• Applications often involve credit checks, business verification, and financial vetting, which can stretch over weeks or even months.
• Start the process well before you actually need the funds to avoid delays in operations or missed opportunities.

Tip: Even fast-approving lenders can take 7–30 days for an initial funding, so don’t wait until you’re cash-strapped.

2. Improve Your Credit History

• Lenders will evaluate your personal and/or business credit scores to determine loan eligibility and terms.
• You can raise your creditworthiness by:
  • Paying all bills on time
  • Reducing existing debt
  • Avoiding new credit inquiries unless necessary
  • Monitoring your credit report for errors
  • Paying off a business credit card every month

Fast Fact: A personal credit score above 680 significantly improves your chances of qualifying for better loan terms from most lenders.

3. Be Prepared with Strong Documentation

• A complete and organized business plan is essential. Include:
  • Revenue projections
  • Budget and expense breakdown
  • Path to profitability
  • Key financial statements
• This shows lenders you’re serious, credible, and thinking long term.

“Lenders aren’t just looking at your business—they’re evaluating your mindset as a borrower. Be clear, specific, and professional in how you present your ask,” -Jillian Cortez, Lending Strategist at Startup Bank.

4. Get Advice from an Expert

• Seek guidance from:
  • Small business advisors
  • Financial planners or accountants
  • Startup founders who’ve secured funding before

They can help you understand your financing options, fine-tune your loan application, and interpret loan offers with confidence.
How to Apply for Small Business Startup Loans

Once you have a short list of options narrowed down, it’s time to apply.

• Use a lending marketing place, like QuickBooks Capital, can save you time. Apply once and get multiple offers back.
• Evaluation pre-qualification offers against your short and long term funding needs.
• Interview lenders with strong offers to ensure they will be a true partner to your business.
• Complete your application with chosen lenders and get a firm qualification offer.
• Get approved, get funded, and put your capital to work.

How to Get a Loan to Start a Business if You Have Bad Credit

Securing a small business loan is challenging for most startups—but it becomes significantly more difficult if you have bad credit, typically defined as a credit score below 580. While it’s not impossible to get funded, your options will likely come with lower loan amounts, higher interest rates, and less favorable repayment terms compared to those available to borrowers with strong credit histories.

Many alternative lenders offer short-term loans to borrowers with bad credit, often backed by collateral such as inventory, equipment, or property. These secured loans may be easier to qualify for, but they carry risk—if you miss a payment or default, you could lose the assets tied to the loan.

There are also several types of financing that may be more accessible to borrowers with low credit scores:

• Invoice Financing: Approval is based on your customers’ creditworthiness rather than your own. If you have unpaid invoices from reliable clients, this option can provide quick access to capital.
• Merchant Cash Advances (MCAs): These provide a lump sum of funding that is repaid through a portion of your future credit card sales. Instead of traditional interest rates, MCAs use a factor rate—typically between 1.2 and 1.4. While they offer fast cash, they can be expensive and risky. Daily or weekly repayment structures may strain your cash flow and increase the risk of default.
• Asset-Based Loans: These loans or lines of credit are secured by business assets, such as equipment, real estate, or inventory. They’re typically used to manage short-term expenses or cash flow gaps and can be a good option if you have valuable assets but a limited credit profile.

While none of these solutions are perfect, they can provide a bridge to better financing as you build credit, generate revenue, and demonstrate repayment reliability.