Small Business and Startup Funding 2026: Loans, SBA and More

Small business owner reviewing loan documents and a cash-flow forecast at a desk

Last reviewed: October 1, 2026

Short answer: A small business or startup can be funded in three basic ways: debt (you borrow and repay with interest), equity (you sell a share of the company) and grants (money you do not repay, but which is rare and tightly restricted). In the United States, most new businesses that borrow do so through a bank or credit union term loan, a line of credit, a loan guaranteed by the Small Business Administration (SBA), a nonprofit microlender or a Community Development Financial Institution (CDFI). The SBA says the maximum 7(a) loan is $5 million, the maximum 504 loan is $5.5 million and microloans go up to $50,000.

Funding "without collateral" exists, but it is rarely free of personal risk. Unsecured business finance usually comes with a personal guarantee, a lien over business assets, a higher price, or all three. The fastest products, such as merchant cash advances, are often the most expensive: a factor rate that looks small can work out to an annual percentage rate above 100%. Decide how much you need, compare the total cost of every offer in dollars and as an annual rate, and never pay an upfront fee to "unlock" a loan or grant.

This guide explains the main funding routes for small businesses and startups, how SBA programmes work, what funding without collateral really means, how lenders judge a young business, and how to apply step by step. It is focused on the United States, with short notes for readers in the United Kingdom and Canada. We do not recommend any lender or product, and we do not quote any lender's prices.

This article is general information, not financial, legal or tax advice. Programme rules, limits and fees change, and lenders set their own terms. Check the official pages and speak to a qualified adviser before you sign.

In this guide

Debt, equity and grants: the three ways to fund a business
How much to borrow and what for
The main types of business loan compared
SBA loan programmes in detail
Funding without collateral: what it really means
Merchant cash advances: factor rates vs APR
Grants and crowdfunding
How lenders assess a startup
Documents checklist
How to apply, step by step
Equity routes: friends and family, angels and venture capital
Costs and fees to check
Disclosure laws, scams and red flags
What to do if you are declined
A note for UK readers
A note for Canadian readers
Common mistakes
Funding checklist
FAQ
Bottom line
Sources

Debt, equity and grants: the three ways to fund a business

Every source of outside business funding is debt, equity, a grant, or a mix of them. Debt must be repaid but leaves you in control. Equity does not have to be repaid but costs you ownership. Grants cost neither, but few businesses qualify.

Feature	Debt	Equity	Grants
What you give up	Future cash flow (repayments plus interest and fees)	A share of ownership and often some control	Time, reporting duties and freedom over how the money is spent
Must it be repaid?	Yes, on a schedule	No, but investors expect a return when the business is sold or pays dividends	No, if you meet the conditions
Personal risk	Often high: personal guarantees and pledged assets are common	Lower direct risk, but you can lose control of the company	Low, but misuse of funds can have legal consequences
Best suited to	Businesses with predictable cash flow or assets to finance	High-growth companies that cannot yet service debt	Research, innovation, nonprofit and community projects
Main trap	Borrowing more, or at a higher cost, than cash flow can carry	Giving away too much too early	Scams that promise "free government money"

One rule of thumb helps with every later decision: match the funding to the purpose. Long-lived assets such as buildings and machinery suit long-term loans. Short-term needs such as seasonal stock suit short-term credit. Using expensive short-term money to cover a long-term gap is one of the most common ways small businesses get into trouble.

How much to borrow and what for

Borrow the amount your plan can prove you need and your cash flow can repay, not the largest amount a lender will approve. Start by listing your startup costs, then work out the gap between those costs and the cash you already have.

The SBA's guidance on calculating startup costs splits expenses into two groups. One-time expenses are the costs of getting open, such as major equipment, permits and a logo. Monthly expenses are recurring costs such as rent, salaries and utilities. The SBA suggests counting at least one year of monthly expenses, and says five years is ideal. It also points out that a break-even analysis is usually required when you take on investors or debt.

An illustrative funding-gap calculation

The figures below are fictional and for illustration only. They show the method, not what any real business should borrow.

Item (fictional example)	Amount
One-time costs (equipment, fit-out, permits, deposits)	$38,000
Monthly running costs of $9,000 for six months	$54,000
Subtotal	$92,000
Contingency at 10% of subtotal	$9,200
Total funding needed	$101,200
Less owner's own cash	$30,000
Funding gap to raise	$71,200

Lenders will ask what the money is for, and some programmes restrict uses. For example, the SBA says microloans cannot be used to pay existing debts or to buy real estate, and 504 loans cannot be used for working capital or inventory. A clear use-of-funds statement is part of any good business plan. Our separate guide on how to write a business plan covers that document in detail, so we do not repeat it here.

The main types of business loan compared

The right loan type depends on what you are financing, how fast you need the money, and how long the business has been trading. In general, the cheapest products are the slowest and the hardest to qualify for, and the fastest products are the most expensive.

Type	How it works	Often used for	Collateral and guarantee	Relative cost and speed
Term loan	A lump sum repaid in fixed instalments over a set term	Expansion, equipment, refinancing	Often secured; personal guarantee common	Lower cost from banks; slower. Online lenders are faster and usually dearer
Line of credit	A revolving limit; you pay interest on what you draw	Working capital, seasonal gaps	Secured or unsecured; personal guarantee common	Flexible; cost varies widely
SBA 7(a) loan	A loan from a bank or other lender, partly guaranteed by the SBA	Working capital, equipment, real estate, refinancing, buying a business	Collateral rules depend on loan size; guarantees from major owners	Rates capped by SBA rules; more paperwork
SBA 504 loan	Long-term fixed-rate financing through a Certified Development Company with a senior lender	Buildings, land, long-life machinery	Secured on the assets financed	Long terms; slower process
SBA microloan	A small loan from a nonprofit intermediary funded by the SBA	Working capital, inventory, supplies, equipment	Set by each intermediary	Small amounts; often comes with training and support
Equipment financing	A loan or lease secured on the equipment itself	Vehicles, machinery, technology	The equipment is the collateral	Moderate cost; fairly fast
Invoice financing or factoring	You borrow against unpaid invoices, or sell them to a factor at a discount	Businesses that wait 30 to 90 days for customers to pay	The invoices are the security	Fast; fees can add up to a high annual cost
Merchant cash advance (MCA)	A provider buys a share of your future sales for a lump sum; repaid by daily or weekly debits	Emergency cash for card-heavy businesses	Often a lien on business assets and a personal guarantee	Very fast; often the most expensive option
Business credit card	A revolving card account in the business's name	Small everyday purchases, short-term float	Usually unsecured, with the owner personally liable	Convenient; expensive if you carry a balance
CDFI loan	A loan from a mission-driven community lender	Startups and owners in underserved communities	Flexible; varies by lender	Often fair terms plus advice; amounts can be modest

CDFI loans

Community Development Financial Institutions are lenders, investors and financial service providers with a community mission. The CDFI Fund, part of the US Treasury, was created in 1994. It describes its purpose as expanding economic opportunity for underserved people and communities by supporting a national network of community development lenders. CDFIs often lend to startups and to owners that banks turn away, and many pair the loan with coaching. The CDFI Fund certifies these institutions; it does not lend to businesses directly.

SBA loan programmes in detail

The SBA does not usually lend money itself. It sets rules for loans made by partner lenders and guarantees part of each loan, which reduces the lender's risk and makes approval more likely. You apply to a lender, not to the SBA.

In the SBA's own words, when a bank thinks a business is too risky to lend to, the SBA can agree to guarantee the loan. The guarantee is a promise to the lender. It is not a gift to the borrower: if you default, you still owe the money, and the lender and the SBA can pursue you and any guarantors for it.

7(a) loans

The 7(a) programme is the SBA's main general-purpose loan programme. The SBA states that the maximum loan amount for a 7(a) loan is $5 million. According to the SBA, the money can fund real estate, working capital, refinancing of business debt, machinery and equipment, furniture and supplies, and changes of ownership.

The SBA's page for lenders sets out the main terms. The SBA can guarantee up to 85% of loans of $150,000 or less and up to 75% of loans above $150,000. SBA Express loans carry a 50% guarantee, and some export loan types carry 90%. Loan terms are ten years or less unless the loan finances or refinances real estate or equipment with a useful life longer than ten years, with a maximum term of 25 years including extensions.

7(a) loan type	Loan size (per SBA)	Maximum SBA guarantee	Collateral position described by SBA
Standard 7(a)	$350,001 to $5 million	75%	Lender takes security in assets acquired or improved with the loan and available fixed assets, up to the loan amount
7(a) Small	Up to $350,000	85% up to $150,000; 75% above	No collateral required for loans of $50,000 or less; above that, the lender follows its own written policy for similar non-SBA loans
SBA Express	Up to $500,000	50%	Lenders are not required to take collateral for loans up to $50,000; above that they may use their existing policy

504 loans

The 504 programme provides long-term, fixed-rate financing for major fixed assets. The SBA says the maximum 504 loan is $5.5 million. The loans are delivered through Certified Development Companies (CDCs), which the SBA authorises to originate 504 loans in collaboration with a senior lender, typically a bank.

According to the SBA, 504 loans can be used to buy, build or renovate buildings and land, and to buy machinery and equipment with a useful life of at least ten years. They cannot be used for working capital, inventory or speculative real estate investment. Maturities of 10, 20 and 25 years are available. The SBA says the rate is pegged to an increment above the market rate for 10-year US Treasury issues, and that fees total approximately 3% of the debt and may be financed with the loan.

Microloans

The SBA microloan programme provides loans of up to $50,000. The SBA says the average microloan is about $13,000. The SBA does not make these loans directly. It funds specially designated intermediary lenders, which it describes as nonprofit community-based organisations with experience in lending and in management and technical assistance.

Microloans can be used for working capital, inventory, supplies, furniture, fixtures, machinery and equipment. They cannot be used to pay existing debts or to buy real estate. The maximum repayment term is seven years. The intermediary makes the credit decision and sets the terms, including the interest rate and any collateral it requires. The SBA publishes a general range for microloan interest rates on its microloans page.

Lender Match

Lender Match is a free SBA tool that connects small businesses with SBA-approved lenders. The SBA describes four steps: describe your needs by answering questions about your business, which takes about five minutes; get matched within two days; talk to the interested lenders and compare rates, terms and fees; and apply.

The SBA says it prepares a summary of interested lenders two business days after you submit a request. It is clear about the limits: Lender Match is not a loan application, and using it does not guarantee that you will be matched or offered a loan.

Funding without collateral: what it really means

"No collateral" means the lender does not take a specific asset, such as a building or vehicle, as security. It does not mean nobody is on the hook. Most unsecured business finance still relies on a personal guarantee, a general lien over business assets, or both.

Personal guarantees

A personal guarantee is a legal promise that you, the owner, will repay the debt if the business cannot. It reaches through the protection of a limited company or LLC. If the business fails, the lender can pursue your personal savings and, depending on the wording and local law, other personal assets.

Personal guarantees are standard in small-business lending, including SBA lending. SBA materials for lenders indicate that owners with a stake of 20% or more are generally expected to guarantee a 7(a) loan. So an SBA loan with "no collateral required" is not a loan with no personal liability.

Before you sign a guarantee, read it in full and get independent legal advice. Check whether it is limited or unlimited, whether it survives after you leave the business, and whether your spouse or partner is being asked to sign too.

UCC blanket liens

In the United States, a lender can register its interest in a borrower's assets by filing a financing statement under the Uniform Commercial Code (UCC), usually with the state. A "blanket" lien covers all or nearly all business assets: equipment, stock, receivables and sometimes more. Many products marketed as unsecured or as needing "no collateral" still involve a blanket lien.

A blanket lien has two practical effects. First, if you default, the lender has a claim on the business's assets ahead of unsecured creditors. Second, the filing is public, and a later lender that sees it may refuse to lend or may offer worse terms because it would rank behind the first lender. Ask every funder in writing whether it will file a UCC statement and what it will cover. When a debt is repaid, ask for the filing to be terminated.

The SBA's collateral policy

The SBA's lender pages set out its approach by loan size. For 7(a) loans of $50,000 or less, lenders are not required to take collateral. For loans from $50,001 to $500,000, the lender must follow the written collateral policies it uses for similarly sized non-SBA commercial loans. For SBA Express loans over $50,000, the SBA says lenders may use their existing collateral policy, except that a loan is not to be declined solely on the basis of inadequate collateral.

Revenue-based financing

With revenue-based financing, a funder provides a lump sum and you repay a fixed percentage of your revenue until you have repaid an agreed total, which is higher than the amount you received. Payments rise in good months and fall in slow ones. That flexibility is useful for businesses with recurring but uneven revenue.

Merchant cash advances: factor rates vs APR

A merchant cash advance is not legally structured as a loan. The provider buys a share of your future sales at a discount and collects through daily or weekly debits. The price is quoted as a factor rate, which hides how expensive the money is when measured as an annual percentage rate (APR).

The Federal Trade Commission (FTC) describes the product this way: MCA providers buy a fixed amount of a small business's future receivables, and the business must repay the advance plus a "factor", often between 20% and 50% of the amount. FTC staff have noted that estimated APRs on MCAs can run into triple digits. They also reported concerns that some providers do not carry out the payment adjustments ("reconciliations") they promise when sales fall, and that some use misleading practices to promote their products.

Illustrative worked example

This example is fictional. The numbers are chosen to show the arithmetic and do not represent any real provider's pricing.

Advance received: $40,000
Factor rate: 1.30
Total to repay: $40,000 x 1.30 = $52,000
Cost of the advance: $52,000 - $40,000 = $12,000
Repayment: $400 every business day for 130 business days (26 weeks), which is $2,000 a week. 130 x $400 = $52,000.

At first glance, paying $12,000 on $40,000 over six months looks like 30% for half a year, or about 60% a year. The real figure is much higher, because you do not have the use of the full $40,000 for six months. You start repaying in the first week, so on average you hold only about half the money over the period.

Treating the repayments as 26 weekly payments of $2,000, the weekly rate that makes those payments equal to $40,000 today is about 2.05%. Multiplied by 52 weeks, that gives an APR of roughly 107%.

Now add a fee. Suppose the provider deducts a $1,000 origination fee, so you receive $39,000 but still repay $52,000. The weekly rate rises to about 2.26%, and the APR to roughly 118%.

Fictional comparison	Cash received	Total repaid	Cost in dollars	Approximate APR
MCA, factor rate 1.30, repaid over 26 weeks	$40,000	$52,000	$12,000	About 107%
Same MCA with a $1,000 fee deducted	$39,000	$52,000	$13,000	About 118%
Six-month instalment loan at a 12% APR, six monthly payments of $6,901.93	$40,000	$41,411.61	$1,411.61	12%

The third row is also fictional and is there only for scale. It shows that the same $40,000 over the same six months costs about $1,412 at a 12% APR, against $12,000 for the advance.

Why repaying early may not help

With an ordinary loan, paying early saves interest. With a factor-rate product, the total you owe is fixed on day one. If strong sales mean you repay the $52,000 in four months instead of six, you still pay the full $12,000, and the effective APR is even higher. Some contracts offer an early-payoff discount; many do not. Ask before signing.

Other MCA risks

Confessions of judgment. The FTC has highlighted contracts containing a "confession of judgment", a clause in which the business owner gives up the right to contest a collection lawsuit in court.
Personal guarantees and liens. In one case, the FTC alleged that providers had told businesses no personal guarantee or upfront fee would be required and then demanded both, made unauthorised withdrawals from accounts, and used threats in collection. The order in that case banned the defendants from the industry.

Grants and crowdfunding

Grants and crowdfunding are real ways to raise money without borrowing, but both are narrower than the advertising suggests. Federal grants to start or expand an ordinary business are essentially unavailable, and crowdfunding carries legal duties.

Grants

The SBA is direct on this point: it does not provide grants for starting and expanding a business. Its grants go to nonprofits, Resource Partners and educational organisations that support entrepreneurship through counselling and training.

There are two main federal exceptions for small companies doing scientific research and development:

Small Business Innovation Research (SBIR), which encourages small businesses to carry out federal research and development with commercial potential.
Small Business Technology Transfer (STTR), in which the small business works with a nonprofit research institution.

The programmes' official site, SBIR.gov, describes the awards as non-dilutive funding, meaning the government takes no ownership stake. It says applicants must be for-profit, US-owned and have fewer than 500 employees, and that 11 federal agencies take part. Awards are made in phases. The site states that, as of April 2026, Phase I awards can reach up to $323,090 and Phase II awards up to $2,153,927 without needing SBA approval to go higher. These are competitive research contracts and grants, not general startup money.

The grant-scam warning

Offers of "free government grants" for businesses are a classic scam. The FTC says the government will not get in touch out of the blue about grants. Scammers use fake adverts, spoofed phone numbers, texts, emails and social media messages, and pose as real or invented agencies. They then ask for personal or bank details, or for a fee paid by gift card, wire transfer or cryptocurrency.

Grants.gov makes the same point: applying for a federal grant is completely free. The SBA adds that it only communicates from email addresses ending in @sba.gov. If someone claiming to be from the SBA writes from any other address, treat it as suspected fraud. You can report grant scams to the FTC at ReportFraud.ftc.gov. Our guide on how to avoid loan scams and fake offers covers the wider pattern.

Crowdfunding

There are two very different kinds of crowdfunding. In rewards crowdfunding, backers pay in advance for a product or a perk. The SBA notes that crowdfunders in this model are not investors: they do not receive a share of ownership and do not expect a financial return. You still owe them what you promised.

In equity crowdfunding, you sell securities, such as shares or notes, to the public. In the United States this is done under Regulation Crowdfunding from the Securities and Exchange Commission (SEC). The SEC's summary of the rules says they:

require all transactions to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal;
permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period;
limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period; and
require disclosure of information in filings with the SEC and to investors and the intermediary.

The SEC also notes that securities bought in a crowdfunding transaction generally cannot be resold for one year. For the business, equity crowdfunding means legal and accounting costs, ongoing reporting and a large number of small shareholders. Take legal advice before starting a campaign.

How lenders assess a startup

Lenders want evidence that the loan will be repaid on time from the business's cash flow, with a fallback if it is not. For a startup with little trading history, the owner's own record carries most of the weight.

The five Cs of credit

Many lenders organise their thinking around five headings, often called the five Cs.

The "C"	What the lender is asking	How a startup can show it
Character	Will this person repay?	Personal credit history, industry experience, references, honest and complete paperwork
Capacity	Can the business afford the payments?	Cash-flow forecasts, bank statements, existing contracts or orders
Capital	How much of your own money is at risk?	Owner's cash injection, retained profits
Collateral	What can be recovered if things go wrong?	Equipment, property, receivables, personal guarantee
Conditions	What is the loan for, and what is happening in the market?	Clear use of funds, realistic market analysis

Personal credit

A new business has no credit record of its own, so lenders look at the owner's. Late payments, high card balances and recent defaults all count against you. Check your reports before you apply and fix any errors. Our guides explain what a credit score is and how it is calculated and how to improve your credit score before applying for a loan.

Time in business

Many conventional lenders prefer businesses with an established trading record, because past results are the best evidence of future ones. This is the single biggest obstacle for startups. It is why microloans, CDFI loans, equipment finance and SBA-backed loans feature so heavily in startup funding: each is designed, at least in part, for borrowers who lack a long history.

Cash flow

Profit and cash are not the same. A business can be profitable on paper and still run out of money if customers pay late. Lenders study bank statements and forecasts to see whether cash comes in early and often enough to cover the payments. A month-by-month cash-flow forecast, with your assumptions written down, is one of the most persuasive things you can bring.

Debt service coverage ratio (DSCR)

The debt service coverage ratio compares the cash a business generates with the debt payments it must make. The basic formula is:

DSCR = annual net operating income / annual debt payments (principal plus interest)

A ratio above 1.0 means the business earns more than it needs to pay its debts. A ratio of exactly 1.0 means there is no cushion at all. Lenders generally want a comfortable margin above 1.0, and each sets its own minimum.

A fictional illustration: a business has annual net operating income of $84,000 and existing debt payments of $60,000 a year. Its DSCR is $84,000 / $60,000 = 1.40. If it takes on a new loan with payments of $24,000 a year, total debt payments rise to $84,000 and the ratio falls to $84,000 / $84,000 = 1.00. Every dollar of operating income would go to lenders. Most lenders would decline that request, and the owner should not want it either.

Documents checklist

Having your paperwork ready before you approach a lender shortens the process and signals that you are organised. Exact requirements vary by lender and product, but most will ask for a version of the following.

Document	Why the lender wants it	Startup note
Business plan	Shows the market, the model and the use of funds	The SBA stresses this especially for startups
Financial projections	Shows capacity to repay	Include month-by-month cash flow and your assumptions
Startup cost breakdown and use-of-funds statement	Shows the amount requested is justified	Attach supplier quotes where you can
Personal and business tax returns	Verifies income	New businesses rely on the owner's personal returns
Bank statements	Shows real cash movement	Open a separate business account early
Financial statements (profit and loss, balance sheet)	Shows performance and position	Even a few months of accounts help
Personal financial statement	Shows the owners' assets and debts	Needed from each owner who will guarantee
Schedule of existing debts	Needed to calculate coverage ratios	List every loan, card and lease
Collateral details	Valuation of any security	Include serial numbers, valuations or title documents

Keep everything consistent. Figures in your plan, your projections and your tax returns should agree, and where they differ you should be ready to explain why. Never inflate revenue or hide debts. False statements on a loan application can be a crime, and for SBA-backed loans you are making statements in connection with a federal programme.

How to apply, step by step

A careful funding application usually takes several weeks of preparation before any form is submitted. The steps below follow the order that saves the most time and protects your credit record.

Define the need. Write down the amount, the purpose and the payback. Use the funding-gap method above.
Check your credit. Get your personal credit reports, dispute errors and pay down card balances if you can.
Prepare the plan and projections. Build a cash-flow forecast and a break-even analysis. Stress-test it: what happens if sales are 25% lower than you expect?
Shortlist the right products. Match the product to the purpose. Do not apply for a merchant cash advance to buy a building or a 504 loan to pay wages.
Find lenders. Start with the bank or credit union that holds your accounts. Use SBA Lender Match for SBA lenders, and look for local CDFIs and microloan intermediaries.
Apply to a small number of lenders. Several formal applications in a short time can mean several credit checks. Ask each lender whether its initial check will affect your score.
Compare offers on the same basis. For each offer, write down the cash you actually receive, the total you repay, the payment amount and frequency, the term, the APR, all fees, the collateral, the guarantee and any prepayment charge.
Read the contract and take advice. Have an attorney or adviser review anything you do not fully understand, especially guarantees, liens and default clauses.

Equity routes: friends and family, angels and venture capital

Equity funding means selling part of your company in return for cash. You do not make monthly repayments, but you permanently share ownership, future profits and, often, decision-making.

Friends and family

Money from people who know you is often the first outside funding a business gets. It is also the easiest to handle badly. Decide whether the money is a gift, a loan or an investment, and put it in writing: the amount, any interest, the repayment terms or the ownership share. A short written agreement protects the relationship as much as the money. Be honest about the risk, and do not take money that someone cannot afford to lose.

Angel investors

Angels are individuals who invest their own money in early-stage companies, usually in exchange for shares or a convertible instrument. Many bring experience and contacts as well as cash. They typically invest earlier and in smaller amounts than venture capital firms.

Venture capital

Venture capital (VC) is institutional equity investment aimed at companies that could grow very large. The SBA lists the ways it differs from traditional financing: venture capital focuses on high-growth companies, invests in exchange for equity rather than debt, takes higher risks in exchange for potentially higher returns, and has a longer investment horizon. Investors usually also want an active role, such as a seat on the board.

What dilution means

Dilution is the fall in your percentage ownership when the company issues new shares. A fictional illustration: a founder owns all 1,000,000 shares of a company. An investor pays $500,000 for 250,000 newly issued shares. There are now 1,250,000 shares. The investor owns 250,000 / 1,250,000 = 20%, and the founder's stake falls from 100% to 80%. The deal values the company at $2,500,000 after the investment ($500,000 / 20%), or $2,000,000 before it.

Costs and fees to check

The interest rate is only one part of the cost of business finance. To compare offers fairly, add up every charge and look at the total cost in dollars and as an annual rate.

Interest rate and APR. The interest rate is the charge on the balance. The APR folds in fees to show a yearly cost. Ask for the APR even if the provider prefers to quote a factor rate or a monthly fee.
Origination or arrangement fee. Often deducted from the money you receive, so you get less than you borrow.
Guarantee fee. SBA loans carry an upfront guaranty fee that the lender may pass on. The SBA says the lender's annual service fee cannot be charged to the borrower.
Closing costs. Appraisals, legal fees, title searches and filing fees, especially on property-backed loans.
Prepayment charges. Some loans charge you for paying early. With factor-rate products, early payment may save nothing at all.

A simple discipline: for every offer, write one line showing the cash received, the total repaid, the difference between them and the time over which you repay. That line makes an expensive offer obvious however it is marketed. If you already carry several debts, our guides on managing multiple loans and refinancing a loan explain how to order and restructure them.

Disclosure laws, scams and red flags

Business borrowers in the United States have fewer legal protections than consumers. Federal rules that require a standard APR disclosure on consumer credit generally do not apply to commercial finance, so you must ask for the numbers yourself.

State commercial financing disclosure laws

Several states have responded by passing their own commercial financing disclosure laws. California and New York are the best-known examples. In broad terms, these laws require providers of certain kinds of business financing, below a size threshold, to give the business a written disclosure of key terms such as the amount funded, the total cost and the payment details before the deal is signed. The coverage, thresholds and required figures differ from state to state, and many products and lenders are exempt.

Your right to know why you were declined

The Equal Credit Opportunity Act and its implementing rule, Regulation B, apply to business credit as well as consumer credit. Lenders may not discriminate on prohibited grounds. Under Regulation B, administered by the Consumer Financial Protection Bureau (CFPB), a creditor must notify a business applicant of adverse action. For businesses with gross revenues of $1 million or less, the creditor must give notice within the standard timeframe, generally 30 days, and must either give the reasons or tell the applicant of the right to a statement of reasons. For larger businesses, notice must be given within a reasonable time, and written reasons must be supplied if the applicant asks for them in writing within 60 days.

Red flags

An upfront fee before you receive any money, especially by gift card, wire or cryptocurrency.
"Guaranteed approval" or "no credit check" for a large amount.
Unsolicited calls, texts or emails offering funding or a government grant.
Someone claiming to be from the SBA but not using an @sba.gov email address.
A contract containing a confession of judgment.

If a provider takes unauthorised payments or misleads you, report it to the FTC at ReportFraud.ftc.gov and to your state attorney general. Contact your bank at once about unauthorised debits. Businesses that take card payments face a separate set of fraud risks, which we cover in our guide to card-not-present fraud prevention for small merchants.

What to do if you are declined

A decline is information, not a final verdict. Find out the reason, fix what you can, and approach a lender whose criteria fit your business better.

Ask why. Use your Regulation B rights to get the reasons. Common ones are a short trading history, weak personal credit, thin cash flow, too much existing debt, or an incomplete file.
Check your credit reports. If the decision relied on a credit report, check it for errors and dispute any you find.
Ask for less, or for something different. A smaller amount, a longer term, an equipment-backed loan or a co-borrower may change the answer.
Try mission-driven lenders. SBA microloan intermediaries and CDFIs exist to serve businesses that banks decline.
Strengthen the file. Build a few more months of revenue, reduce personal debt, add owner capital, or secure a signed customer contract.

A note for UK readers

The UK has its own government-backed schemes, and much business lending there falls outside consumer-credit regulation. Two schemes run through the British Business Bank are the main starting points.

Start Up Loans

GOV.UK describes the Start Up Loan as a government-backed, unsecured personal loan for starting or growing a business. According to GOV.UK, you can borrow £500 to £25,000, repay over 1 to 5 years at a fixed interest rate, and pay no application fee and no early repayment fee. You must live in the UK, be 18 or over, pass a credit check, and have a business that meets the scheme's limit on how long it has been trading. Successful applicants get up to 12 months of free mentoring, and there is free help with writing a business plan. The fixed rate and the trading-age limit are published on GOV.UK; check there for the figures in force when you apply.

Growth Guarantee Scheme

The Growth Guarantee Scheme helps smaller UK businesses borrow from accredited lenders. According to the Scottish Government's Find Business Support service, the scheme can support facilities of up to £2 million (up to £1 million for businesses covered by the Northern Ireland Protocol), the UK government guarantees 70% of the finance to the lender, and the scheme is open to businesses with an annual turnover of less than £45 million. It covers term loans, asset finance, invoice finance and overdrafts.

As with SBA loans, the guarantee protects the lender, not you. The same source states that the borrower remains solely responsible for repaying the full debt. It also says that your main private residence cannot be used as security under the scheme.

Regulation caveat

In the UK, lending to limited companies, and larger loans to any business, generally sits outside the Financial Conduct Authority's consumer-credit rules. Smaller loans to sole traders and small partnerships can be regulated. This means a company director may have fewer protections than a consumer taking a personal loan, and personal guarantees deserve the same care as in the US. Ask the lender whether the agreement is regulated, whether the firm is FCA-authorised, and whether you would have access to the Financial Ombudsman Service if something went wrong.

A note for Canadian readers

Canada's main government-backed loan programme for small firms is the Canada Small Business Financing Program (CSBFP). Innovation, Science and Economic Development Canada (ISED) says the programme makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.

According to ISED:

Small businesses and startups operating in Canada with gross annual revenues of $10 million or less can apply. Farming businesses are not eligible under this programme.
The maximum for any one borrower is $1.15 million: up to $1,000,000 in term loans and up to $150,000 in lines of credit. Within the term-loan limit, no more than $500,000 can go to equipment and leasehold improvements, and of that no more than $150,000 to intangible assets and working capital.
Term loans can finance land and buildings, equipment, leasehold improvements, intangible assets and working capital costs. Lines of credit cover day-to-day operating expenses.
A registration fee of 2% applies. It is paid by the borrower to the lender and may be financed.
Interest is capped relative to the lender's own rates: for floating-rate term loans, the lender's prime rate plus 3%; for lines of credit, prime plus 5%.
Loans are made by banks, caisses populaires and credit unions. Lenders must take security on assets financed, and personal guarantees are optional for the lender to request.

All amounts are in Canadian dollars. You apply through a participating financial institution, which makes the lending decision.

The Business Development Bank of Canada (BDC) is a second route. BDC describes itself as the bank for Canadian entrepreneurs, supporting small and medium-sized businesses in all industries and at every stage of growth with money and advice. It offers financing, advisory services and investment capital alongside the commercial banks.

Common mistakes

Most funding problems come from a short list of avoidable errors. Check your own plan against these before you apply.

Borrowing without a number. Asking for "as much as possible" instead of a justified amount.
Mismatching term and purpose. Funding long-term assets with short-term, high-cost money.
Comparing factor rates with interest rates. A factor rate of 1.30 is not a 30% APR.
Ignoring the personal guarantee. Treating a business loan as if the company alone were at risk.
Overlooking liens. Not asking whether a UCC blanket lien will be filed, then finding you cannot borrow elsewhere.
Stacking advances. Taking new short-term funding to service old.
Chasing grants that do not exist. Spending weeks on "free money" searches, or paying a fee to a grant scammer.

Funding checklist

Work through this list before you sign anything.

I have a written figure for how much I need, with a breakdown and a contingency.
I know exactly what the money will be used for, and the product I am applying for allows that use.
I have a month-by-month cash-flow forecast, including a weaker-sales scenario.
I have calculated my debt service coverage with the new payments included.
I have checked my personal credit reports and corrected errors.
For each offer I know the cash received, the total repaid, the payment amount and frequency, the term and the APR.
I have a full list of fees, including any deducted from the proceeds.
I know what collateral is being taken and whether a UCC blanket lien will be filed.
I know whether I am giving a personal guarantee, and whether it is limited or unlimited.
I have read the default and collection clauses and found no confession of judgment.
I have not paid, and will not pay, an upfront fee to receive a loan or grant.
An attorney or qualified adviser has reviewed anything I did not understand.

FAQ

Can I get a business loan with no money down and no collateral?

Sometimes, but rarely with no personal risk. SBA rules do not require collateral on 7(a) loans of $50,000 or less, and microlenders and CDFIs can be flexible. Most lenders still expect a personal guarantee and some of your own money in the business.

What is the easiest SBA loan to get for a startup?

There is no official "easiest" loan, but microloans are built for small and new businesses. They go up to $50,000 and come from nonprofit intermediaries, often with training. The lender, not the SBA, makes the credit decision.

How much can I borrow with an SBA loan?

The SBA states maximums of $5 million for 7(a) loans, $5.5 million for 504 loans, $500,000 for SBA Express and $50,000 for microloans. What you can actually borrow depends on your cash flow, credit, collateral and the lender's judgment.

What credit score do I need for a small business loan?

There is no single required score. Each lender sets its own criteria and also weighs cash flow, time in business and collateral. A stronger personal record widens your options and lowers your cost.

Is a merchant cash advance a loan?

Usually not in legal terms. It is structured as a sale of future receivables. In practice you receive a lump sum and repay a larger fixed amount through daily or weekly debits, with the cost quoted as a factor rate.

How do I convert a factor rate to an APR?

Multiply the advance by the factor rate to get the total repayment, subtract the cash you receive to get the cost, then use a spreadsheet rate function on the payment schedule. In our fictional example, a 1.30 factor repaid over 26 weeks is roughly a 107% APR.

Are there government grants to start a small business?

Not in the way adverts suggest. The SBA says it does not provide grants for starting and expanding a business. SBIR and STTR fund qualifying research and development, and Grants.gov is the free official database. Anyone charging a fee to get you a grant is not legitimate.

What is a personal guarantee, and can I avoid one?

It is your personal promise to repay the business's debt if the business cannot. It is standard for small and new businesses. You may be able to negotiate a limited guarantee or a cap. Take legal advice before signing.

How long does it take to get a small business loan?

From a day or two for some online products to several weeks or months for bank and SBA loans. Complete, consistent paperwork is the best way to speed things up.

Is it better to take a loan or bring in an investor?

It depends on the business. A loan keeps ownership with you but needs cash flow to repay it. An investor shares the risk but takes part of the company. Steady-revenue businesses usually suit debt; high-growth companies with no revenue usually suit equity.

Can I use a personal loan or credit card to start a business?

Many owners do, but check the terms, because some personal loan agreements prohibit business use. You are fully personally liable, and missed payments damage the personal credit you will need later.

What should I do if a lender asks for an upfront fee?

Stop and verify. A demand for payment before you receive funds, especially by gift card, wire transfer or cryptocurrency, is a strong sign of a scam. Report it to the FTC.

Bottom line

Funding a small business is a matching exercise. Work out the exact amount you need and what it is for. Match that need to the right kind of money: long-term loans for long-lived assets, revolving credit for working capital, equity for high-risk growth, and grants only where you truly qualify. For most US startups, the sensible order of enquiry is your own bank or credit union, SBA-backed loans through Lender Match, and nonprofit microlenders and CDFIs, with fast high-cost products kept as a last resort.

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