SBA Startup Loan (7(a), SBA Microloan)
An SBA startup loan is issued by banks or approved lenders and partially guaranteed by the Small Business Administration. While many SBA lenders prefer two years in business, startups with strong personal credit, relevant industry experience, and collateral may be considered—especially through mission-based or community-focused programs. SBA loans can be used for working capital, equipment, and in some cases business acquisition or partner buyouts.
- Typical uses: Working capital, equipment, inventory, tenant improvements
- Loan sizes: Varies; microloans often up to $50k; 7(a) can be larger
- Terms: Often longer than conventional options; many are amortized monthly
- Speed: Underwriting can take weeks; SBA Express may be faster
- Documentation: Business plan, projections, personal and business tax returns, bank statements, resumes, and collateral detail
- Benefits: Competitive total cost, longer terms, flexible use of proceeds
- Considerations: Personal guarantee often required; more paperwork; slower timeline
Useful resources:
Business Line of Credit for Startups
A business line of credit provides revolving access to funds for short-term needs such as inventory purchases, marketing sprints, or bridging receivables. You draw only what you need and pay interest on the drawn amount.
- Best for: Working capital gaps, seasonal ramp-ups, just-in-time purchases
- Limits: Often tied to revenue, time in business, and credit profile
- Speed: Banks can take longer; online providers may be faster
- Benefits: Flexibility, interest savings on unused capacity
- Considerations: May include draw fees or inactivity fees
Learn more: Business Line of Credit and our guide to business lines of credit.
Term Loan for Small Business
A term loan is a lump-sum loan with fixed periodic payments. Established startups use term loans for expansion, hiring, and strategic projects where returns exceed the cost of capital.
- Best for: Defined, high-ROI initiatives with clear timelines
- Loan sizes: Varies widely; often aligned to revenue and cash flow
- Repayment: Fixed payments; may include prepayment considerations
- Benefits: Predictable budgeting; potentially lower cost than revolving credit
- Considerations: Less flexibility; typically full amortization from day one
Explore: Term Loan and our expert guide to a term loan for small business.
Equipment Financing
Equipment financing uses the equipment as collateral, which can improve access for startups with strong revenue but limited operating history. It’s common in manufacturing, logistics, construction, medical, and food service.
- Best for: Vehicles, machinery, kitchen equipment, medical devices, POS systems
- Loan-to-value (LTV): Often tied to equipment type and useful life
- Benefits: Conserves cash, potential tax advantages, asset-secured
- Considerations: Equipment condition and resale value impact approval and pricing
Get details: Equipment Financing and our 2025 equipment financing guide.
Revenue-Based Financing
Revenue-based financing (RBF) sets repayments as a percentage of monthly revenue until a pre-agreed total is repaid. Payments flex with sales, which can help seasonal businesses and subscription models.
- Best for: SaaS, eCommerce, consumer brands with recurring or predictable revenue
- Benefits: No fixed monthly payment, equity-friendly
- Considerations: Total repayment cap and revenue share impact effective cost
Learn how RBF works: Revenue-Based Financing.
Invoice Financing and Factoring
With invoice financing or factoring, a financier advances a percentage of your outstanding invoices and collects repayment when customers pay. This tool converts A/R into cash for payroll, inventory, or growth campaigns.
- Best for: B2B startups with net-30 to net-90 terms
- Benefits: Speed and collateral-light if your customers have strong credit
- Considerations: Fees and notice-of-assignment practices vary; compare terms
Read our 2025 guide: invoice factoring. See the definition at Investopedia: Factoring.
Microloans
Microloans are smaller-balance loans, often through nonprofit lenders and CDFIs, that can help startups fund initial inventory, equipment, or working capital. Many programs incorporate advisory support, which can be valuable for emerging teams.
- Best for: Early-stage needs under typical bank minimums
- Benefits: Mission-driven underwriting; potential coaching resources
- Considerations: Lower loan caps; may require detailed plans and community impact goals
Alternative Lending for Startups (Short-Term Online Loans, MCA)
Alternative lending offers speed and accessibility, which can be useful when timing is critical. Short-term online loans and merchant cash advances prioritize revenue over long histories. That trade-off often comes with higher costs, so it’s important to model ROI carefully.
- Best for: Urgent inventory flips, time-sensitive opportunities, seasonality gaps
- Benefits: Fast decisions, lighter documentation
- Considerations: Short terms, daily/weekly remittances, factor rates instead of APR
Compare structures: Short-Term Online Loan and our merchant cash advance explainer.
Business Credit Cards and Corporate Cards
Business credit cards can be a supplemental tool for expenses and rewards. They’re best used as part of a broader working capital plan rather than the sole source of growth financing. Pay attention to introductory rates and ongoing APRs, and maintain disciplined utilization.
Expert insight: Think in terms of fit-for-purpose. Match the funding structure to the asset or cash flow it supports—long-term assets with long-term debt; short-term working capital with revolving credit; variable revenue with flexible repayments.
