Key takeaways
- Startups are unlikely to meet minimum revenue and time in business requirements
- Alternative lenders, microloans and SBA loans are common options for startups
- Startup loans may have higher interest rates and shorter repayment terms
While the average small business loan amount is $663,000, according to the Federal Reserve, startup loans are generally far less than this. That’s because, unlike more established small businesses, startup companies usually don’t have a strong credit history or a record of success to share with lenders.
If you have a new business, you might be wondering, “How much can I borrow with a startup business loan?” Your loan amount will depend on the lender you work with and factors like your personal credit history, industry and the type of business loan.
Why small business startup loans tend to be smaller
Startups are new companies with ambitious growth plans and products or services that tap into a unique market. In general, startups are defined as businesses that have been around for a year or less.
A startup carries more risk for lenders because it often hasn’t delivered strong business results yet, hasn’t built much business credit and doesn’t have many assets. Plus, if a startup fails, there’s a risk that the loan might not get repaid.
Because of this, lenders may hesitate to fund startups. If they do, the loan amount will likely be less than an established business would receive. Further proof? According to the 2023 Small Business Credit Survey by the Federal Reserve Banks, 72 percent of startup businesses used personal funds to weather a financial challenge, while 43 percent received some type of business credit.
Lenders prioritize business age and revenue. Startups tend to have lower revenue and do not meet minimum time in business requirements, making it difficult to qualify. The 2023 Small Business Credit Survey found that 26 percent of businesses younger than two years were declined funding.
How much can you borrow for your startup business?
Startup businesses two years old and under tend to seek financing of either $25,000 or less (28 percent) or between $50,000 and $100,000 (24 percent), according to the 2023 Small Business Credit Survey. Yet not all of these businesses received the full amount they were vying for.
For most small business loans, lenders set amounts based on factors like the company’s time in business, revenue and credit history.
Since startups aren’t usually strong in these areas, lenders may consider additional factors when approving your loan amount, including:
- Industry: Lenders may consider a startup’s industry when making a loan decision, offering more money to companies in profitable and stable industries.
- Personal credit: As a startup loan applicant, you’ll need a strong personal credit score and credit history to receive funding. If your credit isn’t great, you could find a lender who will work with your business, but the cost of borrowing may be higher.
- Industry experience: Having experience in your industry gives lenders more confidence that you can repay your loan. In turn, they may offer you a larger amount of money.
- Collateral: If you can offset the lender’s risk by securing your loan with collateral or another asset, the lender may be more likely to approve you for a large loan.
The 2023 Small Business Credit Survey also found that 42 percent of businesses younger than two years had $100,000 or less in outstanding debt. Thirty-eight percent of these businesses were seeking a business loan, and 24 percent were seeking a line of credit.
How much can a startup business borrow from different lenders?
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.
SBA loans
Backed by the U.S. Small Business Administration, SBA loans for startups are designed to help business owners grow their companies and cover expenses like equipment. There are several types of SBA loans with maximum amounts ranging from $50,000 to $5 million. SBA loans are backed by the U.S. Small Business Administration.
Out of the 67,000 7(a) loans approved as of September 2024, over 32 percent have been issued to a new business or a startup, according to the weekly report published by the SBA.
SBA startup loans are known for their low interest rates and generous repayment periods. These loan features keep costs low while you get your business off the ground. The downside is that the application process is involved and can take weeks or months to get approved.
Online lenders
Online and alternative lenders are popular options for startup owners in search of capital. These lenders supply everything from working capital loans to lines of credit to invoice factoring.
These companies and their offerings can vary significantly. Some are known for more flexible repayment terms and low rates than traditional lenders like banks. Others specialize in helping business owners with poor credit.
In fact, 70 percent of applicants were at least partially approved by online lenders in 2023 for loans under $1 million, according to the 2023 Small Business Credit Survey.
However, borrowers have a lower satisfaction rating when working with online lenders. They cite common challenges like high interest rates and unfavorable repayment terms as problems with their borrowing experience. So, while an online lender is more flexible, be prepared to pay more over a short time.
Online lenders have much more lenient criteria than traditional lenders.
- Triton Capital provides startups with equipment loans between $10,000 and $500,000.
- Fundbox has short terms ranging from three to six months and low loan amounts of $150,000 or less, but it accepts businesses with six months in business and a 600 personal credit score.
Some lenders even offer alternatives to loans that rely on your revenue rather than your business’s age, including:
- Fora Financial: Offers funding up to $1.5 million
- Credibly: Offers long-term loans through lending partners up to $10 million, though other loans stop at $600,000
Microloans
Microloans are a type of small loan often funded through nonprofit organizations, and they may be aimed at at small business owners in underserved groups, such as women and veterans. The SBA has a microloan program that offers up to $50,000. Other microloan programs exist with different loan amounts, and many businesses use microloans to fund expenses like inventory and supplies.
As the name suggests, they aren’t as substantial as other small business loans. According to data voluntarily reported to the SBA, the average microloan is around $16,000.
In addition to microloans, there are grants for businesses that are in their startup phase. Many grants are targeted to underserved groups, including:
- Women
- Minorities
- Veterans
The bottom line
Applying for a startup loan is a common way to secure funding for a newly established business. Yet traditional lenders like banks and credit unions may be wary of lending large sums if you don’t have much credit history or business success.
If you’re trying to borrow money for your new venture, look into SBA loans for startups and loans from online lenders. You might also consider other small business funding sources like crowdfunding, using a business credit card or borrowing from friends and family.
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Because the amount your business is approved for will vary based on your personal finances, industry and other factors, there is no set average. However, as of September 2024, nearly 55 percent of SBA loans have been under $150,000 in 2023. To put those numbers in perspective, over 32 percent of SBA loans were given to businesses two years old and under.
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It can be difficult for a startup to meet a bank’s requirements. Many banks require a minimum revenue in the $150,000 range or higher and a minimum time in business of two years or more. But you could find a local bank or credit union with lenient requirements, such as six months in business and $100,000 in annual revenue.
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It depends on the type of loan and lender. Online lenders may process applications within a day or two. Banks and credit unions — and applications for SBA loans — may take weeks to months to process and fund.