My colleague Randa Kriss wrote this edition of Starting Small. Randa is our senior business loans writer. She’s been writing about lending since 2019 and has hosted a webinar at a previous SBA National Small Business Week Virtual Summit. This year’s summit is coming up soon — more below!

Let me know if you have questions you’d like us to answer in upcoming editions! You can always reach me, Rosalie, at [email protected].

The old adage is true — it takes money to make money. But business loans aren’t generally available to brand-new businesses.

Once you hit six months of operation, though, you start to have a few options to level up your operations. At this stage, most businesses use some form of debt, like credit cards or loans.

But not all debt is created equal. Let’s walk through the small-business loan options that you can consider once your business celebrates its half birthday. 

Bank loans

I’ve been writing about business loans since 2019, and if there’s one thing I always tell business owners, it’s this: If you can qualify for a bank loan, get a bank loan. They almost always offer the lowest interest rates and most competitive repayment terms.

But bank loans are notoriously hard to qualify for — especially for new businesses. But it’s possible. Some national banks, like Wells Fargo and Bank of America, offer products to businesses once they hit six months in operation.

To qualify, you’ll need strong personal credit (likely a score of 700+). It will also be helpful if you can show that your business is bringing in revenue and you have a well-developed business plan.

Keep in mind: Bank loan applications are often detailed, and it can take weeks to months to get through the process and get funded. If you can wait that long, it will be worth it to secure those competitive rates and terms.

Pro tip: I always recommend starting your search with a local community bank, or with a bank where you already have a relationship (like the one that holds your business bank account). These institutions are more likely to want to work with and support your business, meaning they may be more lenient with qualification requirements. Here’s more about what it means to develop a relationship with your banker.

SBA loans

SBA loans are backed by the U.S. Small Business Administration, but issued by lending partners, like banks and credit unions. The SBA’s guarantee makes these institutions more likely to lend to small businesses. That means SBA loans may be slightly easier to qualify for than bank loans.

SBA loans are similar to bank loans in a lot of ways. They offer low interest rates, long repayment terms and large loan amounts. They’re also slow to fund and require lots of paperwork to apply.

And although it may be slightly easier to qualify for an SBA loan compared to a bank loan, you’re still going to need good credit and strong finances — especially as a new business.

Pro tip: If you don’t need a large loan, I’d consider the SBA microloan program, which offers funding up to $50,000. This program is designed to support startups and other traditionally underserved businesses. 

Unlike other SBA loans, these products are issued by community and nonprofit lenders. These organizations tend to have flexible qualification requirements, but still offer competitive rates. Plus, many of these lenders offer free resources, like education materials, networking opportunities and mentorship. These can be helpful as you’re investing in growing your operations.

Online loans

Online loans, which are issued by fintech lenders like OnDeck or Bluevine, are fast and generally easier to qualify for. These lenders have flexible qualification requirements, and many will accept lower credit scores (high 500s to 600s range).

If you need a loan tomorrow, you may be able to get one from an online lender, but it will cost you. These loans have high interest rates and short repayment terms (think repaying your loan in six months instead of a year or two). 

While fast funding can be tempting, I’d hesitate before opting for one of these products. Because interest rates are high and repayment terms are short, payments can eat into your cash flow and can be difficult to manage.

Pro tip: If you need access to cash right away, I’d opt for a business line of credit. A line of credit operates similarly to a credit card — you get access to a set amount of money and can pull from it as needed. You only pay interest on the funds you borrow. The flexibility of a line of credit can be much more manageable than taking on a term loan. A line of credit is also a great tool to have in your pocket in case of emergencies.

So, which option should you choose?

I always recommend considering all of your options before making a decision. That sounds obvious, but it can be tempting to take the fast money instead of the right money — especially when costs are piling up and you want to keep the momentum of your business going.

At this early stage, your personal credit score plays a big role in which loans you can qualify for. If you have revenue coming in or assets you can use as collateral, those can be helpful. But your credit score will still likely be a determining factor.

That said, here’s how I would think about choosing a financing option:

If you have a personal credit score of 700+: Start looking for a bank loan. Consider local community options or the bank that houses your business checking account. Even if they won’t lend to you today, starting the conversation can put you in a stronger position in a few months.

If you have good credit (650+): Look into SBA loans. The SBA even has a lender match tool to connect you with potential lenders.

If you have fair or bad credit (under 650): Consider the SBA microloan program first. These lenders are going to still offer competitive rates and terms and may be able to offer additional tools as well.

If you need funding immediately: When there’s no time to waste, an online loan is going to be the fastest option. Make sure you read the fine print and can afford to repay the debt before taking it on.

Also — keep in mind that loans aren’t your only financing route. There are other options like grants, credit cards and crowdfunding. Interested in different types of startup funding? Check out our guide here.

NerdWallet’s Karrin Sehmbi finds and shares these grant opportunities.

Hidden Star is a nonprofit with nearly a decade’s track record in uplifting minority and women entrepreneurs. To date, the org has supported underserved business owners with more than $420,000 in grant money. 

The current grant on offer is $3,500.

April 30 is the application deadline. And since the entry form consists of only six fields to fill in, all with basic information, there’s really no reason to skip this one. Once an entry is selected, Hidden Star is likely to reach out to verify the existence of the business and the eligibility of the entrant.

Click here to see the application.

As with most grants, you need to be at least 18 years old to apply. You’ll also need to create a Galaxy of Stars account (free or paid). Based on the mission of this nonprofit, grant consideration will be given to women and minority applicants. 

If this one’s not a fit for you (or if you just feel inspired to fill out more application forms), check out this list of 50+ small-business grants. Randa regularly updates this page with new opportunities and upcoming deadlines.

Looking for more insight into SBA loans? Want to learn about how your small business can utilize AI? The SBA’s free virtual summit can help you with both of those things — and more!

The SBA’s annual National Small Business Week Virtual Summit is May 5 and 6 from 11 a.m. to 6 p.m. ET. This free event is open to established and aspiring small-business owners. 

The Summit will include educational workshops and information about federal resources like SBA loans and contracting opportunities. You’ll also get access to networking and mentorship opportunities.

Throughout the two-day experience, you can learn about topics like:

And don’t forget, the event is free — but you’ll need to register ahead of time. Sign up here.