Working the typical nine-to-five life isn’t for everyone: There are many college students who dream of starting their own businesses. However, bringing that dream to fruition can be expensive, and finding business financing can be difficult — particularly if you’re a college student or recent graduate. It’s important to understand all your options, so you can get your idea started.
Here are 10 business loans for college students to explore as well as other alternatives:
- Business loans
- Small Business Administration (SBA) loans
- Personal loans
- Business credit cards
- Angel investors
- Venture Capital
- Ask family and friends
- Enter business plan competitions
- Finance through Accion
10 business loans for college students
When it comes to financing, you’ll need to consider your business’ stage of development, how much you want, your credit score and if you’ll have ongoing financing needs. Once you have that information in place, you can choose one of these 10 forms of financing available.
1. Business loans
If you have an established company and need money to expand your business, hire new staff or buy new equipment, a business loan is a good place to start.
Startup loans are excellent choices because they give you a layer of protection. If your company fails, the lender can only liquidate your business assets — they cannot touch your personal assets, and your credit score will remain intact. This benefit can be financially invaluable if your idea doesn’t work.
Most banks and credit unions offer startup loans. To apply for a business loan, make sure you complete the following steps:
- Create a business plan. Most business loan lenders will require you to submit a company plan that outlines your business structure, market strategy, competitive analysis, development plan and financial information.
- Know how you’ll use the money. Many lenders will ask that you specify how you’ll use the money. Make sure you have a concrete plan for what you’ll buy or how it would help you expand your inventory.
- Collect documentation. Besides a business plan, you’ll also need to provide lenders with your personal and business tax returns, bank statements and annual report or statement of finances.
Although business loans can help you finance your goals, you might have trouble getting one if your venture is in the early stages of development. In fact, you might find only lenders with high interest rates are willing to work with you at first. But these interest rates can be well into the double digits, causing your loan balance to grow over time.
If that’s the case for your situation, it might be worth exploring other options first.
2. Small Business Administration (SBA) loans, including SBA microloans
If your business is new, you might not be able to qualify for a business loan. Often, lenders require businesses to exist for several years before they’re eligible for loans. Instead, you might have better luck applying for an SBA loan.
The SBA works with banks, credit unions and development organizations to offer low-rate loans to those starting a new business or running an existing one. The SBA guarantees a portion of the loan, reducing the risk for the lender. Because there’s less risk, banks and other financial institutions can offer lower rates.
Depending on your needs and the status of your business, SBA loans can range from $500 to $5.5 million in value. You can use the loan for fixed assets, such as office furniture or equipment or working capital.
Each lender that offers SBA loans has its own eligibility requirements in terms of credit score and income. In general, you must meet the following criteria:
- You run a for-profit business.
- You do business in the U.S.
- You’ve invested your own time or money into the company.
- You cannot get financing from other lenders.
You can use the SBA’s lender match tool to find approved lenders near you.
3. Personal loans
If you don’t qualify for business loans or SBA loans, another option to consider is taking out a personal loan. Depending on your goals, you could borrow as much as $100,000.
Personal loans are often easier to get than other forms of debt, as some personal loan lenders will even issue loans to borrowers with credit scores as low as 585. Plus, personal loans don’t usually require collateral, which means none of your assets — like your home or business — are at risk.
Depending on your credit, you might even be able to get a loan at a low interest rate. Some lenders offer loans with interest rates as low as 4.37%.
However, there are some drawbacks to using a personal loan for a business. With a personal loan, you’re responsible for repaying the debt no matter what happens to your business. If your business enters bankruptcy, you’ll still need to keep up with the payments on your loan. And when you fall behind, your personal credit can be damaged, and the lender can send you into collections.
If you have poor credit, you could still qualify for a loan. However, you could end up paying much higher interest rates.
For example, pretend you needed $50,000 for your business and you had an excellent credit score. You could qualify for a five-year loan at 6%. Over the repayment term, you’d pay back just $7,998 in interest.
However, you might only be able to get a loan at 35.00% interest if you have less-than-stellar credit. If you took out $50,000 at that interest rate and repaid it over five years, you’d pay back $56,471 in interest charges alone. The cost of your loan would more than double due to the higher interest rate.
You can use our personal loan calculator to estimate how much you’d pay in interest.
4. Business credit cards
Using a credit card to fund your business can be a smart decision. If you need access to revolving credit, a credit card can be a better choice than a business or personal loan.
Using a business credit card rather than a personal one can also make your life easier at tax time. You can simply review your card statement for purchases and payments, without worrying about checking for personal expenses. In addition, a business credit card can help you establish your business’s credit history, making it easier to get a loan later on.
Some business credit cards offer rewards, such as cash back for your purchases, which can stretch your budget further, and they might even have a zero-interest promotional period.
However, getting a credit card is only advised if you have good credit. Otherwise, you could get hit with expensive interest rates that can cause your balance to grow.
Another thing to keep in mind is that your card usage could affect your personal credit. Some card companies report your activity to credit reporting agencies, which can impact your credit score if you fall behind on your payments.
Worse, some companies will require you to sign a personal guarantee for the credit card — that means that you’ll be responsible for paying off the card balance even if your business fails. Unlike business loans or SBA loans, your credit card balance might not be dissolved when your company enters bankruptcy.
5. Angel investors
An angel investor is a wealthy individual who invests their money in businesses and startups. An angel investor can also supply more than just capital. They can offer business advice, connect you with suppliers or other investors and even expand your client base. In return for a loan, the angel investor gets equity in the business, earns money from returns or gets royalties from your products.
When seeking out an angel investor, it’s important to remember that accepting a loan will often mean giving up at least some control of your business. In some cases, that can be worth it to get an experienced business advisor, but it can shift your company’s dynamic.
To find an angel investor, you can post your project on the Angel Investment Network.
6. Venture capital
Venture capitalists typically offer more funds than angel investors and eventually may get involved in the business. These types of investors not only provide funds to new and small business owners, they also provide industry expertise and networking opportunities to grow your business.
Because venture capitalists are very focused on how to make a profit, you’ll want to have an effective business plan and pitch in place before reaching out. You should also have your business numbers lined up and a clear strategy available as to how you plan to make them back their money.
If you need business financing but can’t get a loan or a credit card, don’t give up on your idea. You could get your business off the ground by crowdfunding.
It can be a powerful option: According to crowdfunding site Kickstarter, 21 million people have pledged over $6.6 billion to fund more than 218,956 projects since the site launched in 2009.
With crowdfunding, you use a site like Kickstarter or GoFundMe to post your idea and funding needs. You can share that post on social media to bring attention to your goals. Individuals contribute money — sometimes a few dollars, sometimes thousands of dollars — to support your project.
The money these people contribute isn’t a loan. Instead, they’re repaid for recognition. For example, you might thank those people on your website or send them a prototype of your product.
However, you shouldn’t depend solely on crowdfunding to get financing. There’s no guarantee that your post will attract the attention or the funds you need. Plus, you only get the money backers pledged if you meet your funding goal. If you raise less than that amount, you cannot access the funds.
8. Ask family and friends
For many new business owners, it’s typically their friends and family who help them out at first. Your loved ones may be willing to provide you with a loan or even invest in your business.
This may be advantageous since you won’t have to worry about applying for a loan or credit score.
However, it’s still important that you treat your friends and family like professional investors or lenders and show them your business plan, your investor pitch and how you plan to pay them back.
You’ll want to get the details of the loan in writing, including interest rates, loan terms and payment due dates.
9. Enter business plan competitions
If you’re struggling to secure funding for your business but believe you have a unique idea, consider entering a business plan competition. There are competitions held all over the U.S. that grant entrepreneurs funding for their startup, should they win.
While each competition is different, you’ll typically need to provide a business plan, an elevator pitch and documents such as licenses, proof of incorporation and capitalization tables.
You’ll need to check the criteria for each competition before entering, however, as some business plan competitions have rules around revenue and equity capital.
10. Finance through Accion
If you’re opening a small business, you may want to consider a business loan through Accion. This nonprofit offers microfinancing to entrepreneurs, particularly to people of color, women and those with low incomes. Accion also provides resources and connections for small business owners.
Accion has assisted over 10 million borrowers and is partnered with more than 170 organizations in 55 countries. The organization offers loans ranging from $5,000 to $100,000, with interest rates starting at 5.99%.
The best small business loans
There’s a lot of information to go through when choosing how to fund your new business. To help you narrow it down, we’ve put together a list of the best small business loans and what you need to know about them. For more details (including how we chose them), check out our in-depth guide on the best business loans.
|Lender||Best for||Loan Terms||Amount||Rates||Min. credit Score|
|SmartBiz||SBA loans||0 to 300 months||$500,000 to $5,000,000||4.75% to 6.00%||675|
|OnDeck||Short-term loans||0 to 0 months||$5,000 to $150,000||0.00% to 0.00%||0|
|Funding Circle||Long-term loans||0 to 0 months||$25,000 to $500,000||5.00% to 30.00% interest rates on loans issued directly by Funding Circle||660|
|Bluevine||Line of credit||6 to 12 months||$5,000 to $250,000||Simple interest rates starting at 4.80% for 26-week repayment||625|
|Credibly||Working capital||to months||to||Factor rates starting at|
|National Funding||Equipment financing||0 to 0 months||$0 to $150,000||Beginning at 0.00% simple interest||620|
|Elevation Capital||Accounts receivable financing||0-month avg. repayment||$100,000 to $10,000,000||Factor rates starting at 0.00%||600|
|Reliant Funding||Merchant cash advances||3 to 15 months||$5,000 to $400,000||Factor rates starting at 0.00%||525|
|QuickBridge||Bad credit||36 to 60 months||$5,000 to $500,000||Factor rates starting at 4.99%||575|
|Mulligan Funding||Fast funding||12 to 36 months||$50,000 to $2,000,000||Factor rates starting at 0.00%||600|
How to get organized before applying for business loans for college students
Before looking for investors and business loans for your startup, there are a few boxes you’ll want to check off first . These steps will show lenders and investors that you’re taking your business seriously and how you plan to make money.
- Write a business plan: One of the first things you may have to show investors is your business plan. This document should demonstrate your goals as a business and how you strategically plan to meet those objectives. In your business plan, you’ll need to outline your costs, budget, products or services, financial plan, target market, market analysis and strategy.
- Create a dynamic investor presentation: In order to get your business to take off, you’ll need funding. This is where investors come in, whether its family and friends or venture capitalists. To convince investors to come on board, you’ll need to have an attractive pitch ready for your business, as well as the numbers to back it up.
- Choose how to structure your business: When starting your own business, you’ll need to decide how to structure it. Are you going to be the sole proprietor? Will you have partners? Or will you become an LLC? Some investors may not be willing to provide funding until you’ve become incorporated so this is an important step to take.
- Organize a bookkeeping system: If you’re going to run your own business, one of the most important plans to have in place is how you’re going to track the money coming in and out of your business. While it’s certainly not the most exciting part of starting a business, having a detailed accounting system can help you track your expenses, your bills and any money that you’re owed.
More information on starting a business
Becoming an entrepreneur may be exciting, but finding business financing can be challenging. By doing some research and choosing the best option for you, you can launch your business without risking your own money.
For more information, check out our guide on how to start a side business.