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That means business credit cards can be a great alternative to startup business loans

That means business credit cards can be a great alternative to startup business loans

While many of us think of credit cards as a safe and convenient way to pay for purchases, they also offer access to an unsecured loan in the form of a line of credit.

They can also help you get off on the right foot separating business and personal finances and establishing business credit . To qualify for a business credit card, issuers will generally look at your personal credit scores and combined income (personal and business). While they may not require collateral, they typically require a personal guarantee. Most business credit cards have the added bonus of great rewards programs and sign-up bonuses.

A good tip would be to choose a card with a 0% introductory rate offer. Doing so allows you to make purchases and carry a balance for 9, 12, or even 15 months without paying interest while you get your business going. In a recent Federal Reserve Small Business Credit survey, 53% of small businesses reported using credit cards to help fund their operations.

3. SBA 7(a) Loans

For the most part, the U.S. Small Business Administration (SBA) doesn’t make loans-it guarantees them. Individual lenders are approved by the SBA to make loans under SBA programs, and these generally offer lower interest rates.

There are several different types of SBA loans, and among the most popular is the 7(a) program, which offers loans up to $5 million. If you’re wondering if you can get an SBA loan to start a business, keep in mind that in the 2021 fiscal year , 17% of the money lent to small businesses through the 7(a) loan program went to startup businesses.

Getting an SBA loan isn’t a super-fast or easy process, though the SBA Express loan program (which generally offers loans of up to $350,000) aims to speed it up somewhat).

There are a number of qualifications required, including acceptable credit. There is no minimum personal credit score required, but for 7(a) loans of $350,000 or less, the SBA requires a minimum FICO SBSS credit score of 155 to avoid a manual credit review. (This commercial credit score can take into account the personal credit of multiple owners along with the business credit of the business. The score ranges from 0-300.)

SBA 7(a) loans for startups are more likely to go to business owners with experience in their industry (a veterinarian opening her own practice, for example) or those purchasing an existing business, including a franchise. Because the terms are favorable, it is a financing option worth exploring.

As mentioned earlier, SBA 504 loans may be helpful for businesses looking to acquire real estate or equipment, while SBA Export Loan programs may be available to businesses that will be participating in international trade. Learn more about SBA loans here .

4. SBA Microloans

SBA microloans are made by approved intermediaries, often community development financial institutions ( CDFIs ) and other non-profit organizations. While the total maximum loan amount is $50,000, the average loan is closer to $14,000. An SBA microloan is a term loan, with a maximum term of 72 months; the average is about 40 months. Funds may be used for working capital or the purchase of inventory or supplies, machinery or equipment, or fixtures and furniture.

5. Other Microlenders

The SBA is not the only microlending option. Microlenders are often non-profit organizations that offer small businesses the opportunity to secure financing in smaller amounts. When it comes to microlenders, be sure to check out these two options:

  • Accion: Loans are available from $5,000-$100,000 through Accion’s CDFI partners. It tends to be flexible on credit requirements and provides assistance to applicants.
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