How to Decide Which Startup Business Funding Option Is Right for You

| Read Time: 8 minutes
Share This Post

Startups have more funding options than ever — which can mean more ways to stress over which option is the best fit. Beyond the usual things you need to consider when scouting startup business funding — how much money you need, when you need it, on what terms and so on — it behooves you to educate yourself on everything from fintech and factor rates to crowdfunding and 401k rollovers. The process can be overwhelming, to say the least, but you'll be better off because of it. The good news is, gaining that knowledge puts you one step closer to getting the funding your startup needs to thrive. Use this flowchart to help guide you towards the startup business funding that's best for your business. Answer the questions honestly to see where you end up. Then, click or scroll on down to read more about the best startup business funding option for you .

Types of Funding Options

Not too long ago, most startups had few choices for business funding outside of traditional banks, credit unions, individual investors and the U.S. Small Business Administration (SBA) — and even those options weren't readily available to all businesses. The internet has changed all that, bringing aboard online-only lenders, peer-to-peer (P2P) platforms, app-based banks, crowdfunding sites and experienced business funding consultants along with near-instant access to credit card financing and bank loans. For those not ready to embrace the brave new world of financial technology, plenty of traditional term loans, credit lines and financing options are available at all the usual places. But depending on your particular situation, you might want to explore alternative options that you can access from your laptop.

SBA Loans

  • Funding amount: The average is about $100,000 but can range from less than $25,000 to $ 5 million.
  • APR range: Changes periodically, but usually around 25% to 9.75%
  • Term: 7 to 25 years, with few exceptions

SBA loans are only available to business owners who were rejected for conventional small business loans. Plus, the SBA requires applicants to provide multiples years of financial statements and business tax returns, which is simply not possible for new businesses. The SBA doesn’t lend the money itself but acts as a guarantor for banks, credit unions and other lenders. Read This: 5 Creative Ways to Fund Your Startup Without Investors

Bank Term Loan

  • Amount: Averages about $590,000 from large banks and $146,000 from small or regional banks, but can range from less than $10,000 to several million dollars. Startups typically get smaller amounts.
  • APR range: Typically 4% to 13%
  • Term: Less than 3 years for intermediate loans; 20 years or more for long-term loans

Bank term loans are a popular option for businesses that need to fund expansion, acquisitions or major investments. These loans typically have fixed interest rates, a predetermined maturity date and monthly or quarterly payment installments. They also tend to have rigid approval standards and often require some type of collateral.

Bank Line of Credit

  • Amount: Typically $10,000 to $100,000 for unsecured lines of credit and $100,000 and up for secured lines of credit.
  • APR range: 5% to 20% or more
  • Term: Typically renewed every 1 to 2 years, though the draw period can last several years

A bank line of credit, or LOC, often acts more like a credit card than a traditional small business loan. Lines of credit have less rigid loan approval standards and don’t include a lump-sum amount that must be paid back in monthly installments. Unsecured lines of credit don’t require any collateral and are often used to pay off business expenses. Secured lines of credit might be used to finance major business investments. Deep Dive: Business Line of Credit Vs. Loan — Which Should You Choose?

Equipment Financing

  • Amount: Ranges from about $10,000 to more than $100,000 at major banks.
  • APR range: 8% to 30%, depending on creditworthiness
  • Term: Most lenders set a maximum of 10 years

Startups that rely on equipment to operate often seek equipment financing to buy, replace or upgrade their machines. These funds are usually available without the credit and down payment requirements found in traditional small business loans. Many small business equipment loans have fixed interest rates and set term lengths so borrowers can make the same payment every month. Leasing options also are available.

Credit Card-Based Financing at 0% APR for 12+ Months

  • Amount: Some business credit cards offer credit limits of $50,000 or more, though most startups will qualify for lower limits.
  • APR range: Introductory 0% period with rates typically ranging from 15% to 25% thereafter
  • Term: Revolving line of credit

Many personal and business credit cards come with an introductory APR offer of 0%, typically for 12 months but sometimes longer. These cards work well if you have a major purchase to finance during your first year of business and don’t want to throw working capital away on monthly interest charges. It’s important that you have a full understanding of all the terms and conditions so you understand exactly how much it might cost you when the introductory period expires. The process of choosing and applying for the right credit cards can be confusing for new business owners, but you can get expert advice from business funding consultants such as Seek Business Capital .

Non-Bank Line of Credit

  • Amount: Ranges from $15,000 to $50,000 for unsecured lines of credit and $50,000 to $100,000 for secured LOCs.
  • APR range: 5% to more than 20%
  • Term: Typically no more than 7 years, with varying renewal terms

Many startups get non-bank lines of credit from credit unions, either directly or through the SBA. Credit requirements are usually less stringent than with traditional lenders. Similar to bank lines of credit, non-bank lines of credit can be secured or unsecured.

Non-Bank Term Loan

  • Amount: P2P loans from major providers usually range from about $40,000 to $350,000; credit union loans might range from a few thousand dollars to $50,000 or more.
  • APR range: Can range from 8% to 30% or more; some lenders also charge origination fees
  • Term: Varies, but typically 6 months to 3 years

A growing number of startups that have a hard time qualifying for traditional bank loans are turning to alternative sources such as credit unions, fintech lenders and peer-to-peer platforms, which link up borrowers and lenders. Fees and interest rates for P2Ps can be steep, especially for startups with weak credit scores and little revenue. However, numerous options are available, including companies you already know like PayPal.

Non-Bank Merchant Cash Advance

  • Amount: Fixed amounts usually range from $2,500 to $250,000, though some could reach into the millions
  • APR range: Effective APRs can range from 38% all the way into triple digits, depending on the fee and repayment terms
  • Term: Can range from 3 months to 18 months or longer

Merchant cash advances (MCAs) are short-term funding options designed for small businesses in need of a quick infusion of cash. These typically act as advances on a business’ future credit- or debit-card sales. Because MCAs aren’t subject to the same regulatory standards as traditional business loans, you could face steep fees in the form of factor rates if you aren’t careful. See: Ask Yourself These 5 Questions Before Starting a Business

Non-Bank Equipment Financing

  • Amount: Can range from $5,000 to $500,000 at the bigger independent finance and fintech firms
  • APR range: 3% to 30% or more
  • Term: Usually about 2 to 6 years

Equipment financing loans typically come in lump sums intended to buy or upgrade equipment necessary to operate a business. They work similarly to traditional business loans in that there are usually set interest rates, term lengths and payments. Related: The Best States to Start a Business

401k Rollover Funding

  • Amount: Varies, depending on how much money is in the 401k. The average balance ranges from about $22,000 for ages 24-34 to around $180,000 for ages 55-64
  • APR range: Does not apply to 401k rollover funding, though you could face taxes and penalties
  • Term: N/A

The process of using 401k funds to finance your startup is a complicated one that requires several important legal steps . One thing you’ll need to do is roll the money over into a corporate retirement account that lets you invest your funds in the business. Unless you have plenty of expertise, it’s best to hire a financial planner or third-party retirement plan administrator to ensure you get the steps right. The downside: You might have to pay a lot of money for their services.


  • Amount: The average successful crowdfunding campaign raises about $7,000, though amounts can range from a few hundred dollars to the more than $20 million that Pebble Time-Awesome Smartwatch raised on Kickstarter
  • APR range: APRs for top debt crowdfunding sites can range from about 5% to 35%, in addition to origination and other fees
  • Term: Terms typically don’t go much beyond 5 to 7 years for top debt crowdfunding platforms

Crowdfunding is a great way to reach thousands of potential investors or lenders, though you’ll need the right product, service and pitch to get people to send money your way. For business purposes you’ll want to use either debt crowdfunding, where contributors act as lenders and are repaid in monthly installments; or equity crowdfunding, where contributors get a piece of your company. Related: How to Fund Your Business Using Crowdfunding

Loans from Family and Friends

  • Amount: Varies depending on the friend or family. If the loan is more than $13,000 and the IRS views it as a gift with no intention to repay, it’s subject to federal gift taxes
  • APR range: Interest rates must be no lower than applicable federal rates (AFR) to prove that it’s a legitimate business loan. As of January 2019 the IRS’s annual AFR was 2.72% for short-term loans, 2.89% for mid-term and 3.15% for long-term. No-interest loans should be less than $100,000 to avoid charging the lender imputed interest
  • Term: Varies, though it’s probably best to agree on terms that don’t stretch much beyond 5 to 7 years

More than a few entrepreneurs have tapped family and friends for startup capital , either as investors or lenders. If you decide to go this route, it’s always a good idea to treat it as any other business transaction. Get everything in writing, set out the terms and conditions in plain language and make sure the loans you get have sufficient repayment terms that they don’t cross over into taxable gifts. It’s also a good idea to ask your stakeholders for advice and sell them on the profit potential of your business. Read: 9 Small Business Grants for Women

The Bottom Line

Deciding which startup business funding option is right for you begins with asking yourself some important questions, including the following:

  • How much money do I need, and what do I need it for?
  • What kind of cash flow is required to repay it?
  • How much time will I need to repay it?
  • What are my short-term financial needs versus my long-term needs?
  • How will my credit score and history impact my ability to get the funding I require?
  • How much working capital can I spare for interest payments and loan fees?

The choice you ultimately make depends on your financial situation and requirements. If you’re in need of a quick infusion of cash to launch your business and start generating revenue, then a merchant cash advance might work. If you already have steady business and a decent credit score, consider an SBA or bank loan. Before making a final decision, be sure to research each option thoroughly so you can get the right fit and the very best financing terms. More From Seek

Business Loan Resources

Photo credit: yayha/

Did You Know?
We've funded over $400 million for small business owners since 2015