There are so many small business startup loans available today that it can be difficult to find the right solution for you. When starting a business it’s important to find a solution that gives you the money you need, with payments you can afford, and the process doesn’t take you away from running or growing your business.
For startup financing, we recommend getting a ROBS (Rollover for Business Startups) through Guidant Financial. All you need is $50K+ in your 401k, Traditional IRA, or other eligible retirement account, and the ability to work in your business full time (35+ hours per week). Guidant offers a free consultation to help you understand how a ROBS can help your own personal situation.
Startup Business Loan Options at a Glance
|What It Is||What Borrowers Use It|
|Rollover for Business Startups (ROBS)||Use your retirement savings (401k, IRA) to start your business||Anyone with $50K+ in a retirement account willing to put it at risk to start a business.|
|SBA Loan or Conventional Bank Loans||Loan from a traditional lender guaranteed by the Small Business Administration||Prime borrowers who have strong industry experience and can show a viable business plan.|
|Home Equity Line of Credit (HELOC)||A loan against the equity in your personal home||Borrowers with 20%+ equity in their home and willing to risk it in their business.|
|Business Credit Cards||An entry level revolving credit line.||Every small business owner should have this in their toolkit.|
|Personal Loan||A loan based only on your personal assets and credit profile.||Prime borrowers not afraid to put their personal assets at risk, who have little or no business revenue and assets.|
Where to Get Small Business Startup Loans
There are many options when looking at getting startup financing. From difficult to qualify for conventional bank loans to using credit cards, no solution is right for everyone, but there are plenty of opportunities for you to pursue.
While there are other startup loan options, the ones in the table above are the five best options for most small businesses. They are also the ones least likely to put your business in a significant hole from day one. They are more affordable than most other forms of financing, and are most likely to help you achieve your desired results.
Rollover for Business Startups (ROBS)
A rollover for business startups (ROBS) is using your personal retirement funds to start, buy, or grow your business. You roll your retirement funds over into a 401k account that is created by your business. That 401k account then buys shares of your business with the money, and the funds are free to be used for any business purpose.
Typically if you take a loan against your 401k, or if you cash out your retirement account, then you’ll be on the hook for early withdrawal penalties or large tax obligations. This is not the case with a ROBS. When your rollover the funds, you do it without paying any taxes or withdrawal fees.
To qualify for a ROBS, you need to meet these qualifications:
- Business needs to be a C Corporation
- $50K+ in 401k or Traditional IRA
- You need to work full time (35+ hours) in your business
- ~$5,000 to start the process and ~$140 per month afterwards to manage it
ROBS are the best kept secret in startup financing. Unlike a loan, a ROBS allows you to put money in your business without the business being burdened with additional debt. That means there’s no monthly loan payments to worry about. ROBS set your business up for more success than other forms of financing.
In fact, our recommended ROBS provider, Guidant, did a study of startups that started their business with a ROBS compared to those that started with a loan. The businesses that used a ROBS were 82% more likely to still be in business after 4 years over the businesses that started by taking on debt.
Guidant is our recommended ROBS provider. They do more ROBS per year than anyone else in the country, and they have a 100% success rate. They’re the only ROBS provider that will give you two free hours of consultation with a ROBS experienced attorney before you pay any money. Typically, Guidant will get your funds into your business within about 3 weeks.
SBA loans are great loans to buy a business. They’re not great for startups without at least 2 years of experience, or without consistent revenues. While there are options for brand new businesses to get an SBA loan, it’s more difficult than other financing options. If you’re buying a business, then we recommend getting an SBA loan over any other loan.
SBA loans are typically the most affordable debt you can get. If you qualify, you can get better rates and longer terms through an SBA loan than you’re likely to get elsewhere.
SBA loans are given by traditional lenders, but the funds are guaranteed by the Small Business Administration. SBA loans take a long time to get (45-120+ days), and the process can consume a lot of your time that you normally have dedicated to your business.
You can qualify for an SBA loan by having:
- 2+ years of business experience
- 680+ credit score (check yours for free)
- 10-20% down payment
- No bankruptcies, foreclosures, or tax liens
Home Equity Line of Credit (HELOC)
A HELOC or HEL (Home Equity Loan) could be a good option if you’ve got 20-30% of equity in your personal home. You’re essentially giving up your home equity in exchange for the financing you need to start your business. A lender will generally give you up to 90% of the value of your equity with a HELOC.
A HELOC is a line of credit that you can borrow against when you need it, only paying interest on the portion of the line you’re using. A home equity loan gives you a lump sum upfront with you paying interest on the full loan amount.
A HELOC typically has very competitive rates (3-8%) compared to other loan options, but the risk is that you could lose your home if you fail to make your payments.
Business Credit Cards
Many borrowers don’t think about credit cards as a legit financing opportunity because the loan amounts are less than other forms of financing. However, business credit cards should be a tool in every business’s financial toolkit. They’re easy to qualify for, and offer plenty of perks and rewards that can maximize the use of your credit.
Business credit cards typically have interest rates that fall between 12% – 28%, and you can generally qualify if you have a 630+ credit score. You can use your credit cards to keep track of all of your business expenses, making your end of year accounting a lot easier, especially if you have employees.
Business credit cards often have 0% introductory periods that allow you to basically borrow for free, as long as you pay off the balance within the introductory time frame. Plus, these cards can give you cash back or rewards to get free hotel stays, airline tickets, or more. This can help a new business cut down on expenses from time to time.
Personal loans don’t take your business revenues or credit into account at all. Instead, the lender will use your personal credit profile and assets to determine whether or not they can lend to you. These loans have smaller amounts than business loans, typically less than $40K.
Prosper and Lending Club both offer these personal loans, and can get you funded within 3-5 days. While both are good options, we recommend Prosper because they’re easy to use, offer a single monthly payment, and fixed terms of 3 or 5 years.
The Smart Hack
There are plenty of small business startup loans that can all get your business off the ground successfully. Each option on this list can be used, and many of them can be used together. Business credit cards are a great option to combine with another financing option of your choice.
Our recommended option of all the startup business loans on this list is a ROBS, because it’s not a loan. With ROBS you won’t burden your business with debt from the get go, and you can use your retirement funds without paying taxes or early withdrawal fees. Guidant can give you a free consultation to help you through the process if you visit them today.