Cup loan programs, sometimes called cup fund loans, are a unique type of small business financing option that provides loans in increments. Rather than taking out one large loan upfront, small business owners can access smaller “cups” of financing as needed to fund growth and operations.
How Do Cup Loans Work?
With a cup loan, a lender approves a business for a maximum loan amount, say $100,000. But instead of giving the full funds up front, the lender splits this into smaller increments or cups, usually around $5,000 to $10,000 each.
As the business owner repays each cup, additional cups of financing open up, allowing them to strategically access more capital only when required. Repayment terms on each cup can range from 3-12 months.
Key Benefits of Cup Loans
Cup loans provide several advantages over conventional small business financing:
- Access Capital as Needed: Only take what you require, when you need it. Avoid paying interest on unnecessary unused funds.
- Flexible Repayment: Each cup functions as a separate loan with individual repayment schedules, usually 3-12 months per cup.
- Build Credit: Timely repayment of cups builds business credit to qualify for larger loan amounts.
- Lower Qualifying Requirements: Newer businesses may qualify for cups based on revenue potential before building robust financials.
- Strategic Growth: Cup loans allow taking a strategic, incremental approach to expansion based on business needs.
Ideal Cup Loan Borrowers
Cup loans best suit certain small business profiles, including:
- Newer Businesses – Those without the operational history to qualify for larger, traditional financing options.
- Variable Cash Flows – Cup loans help manage uneven revenue streams with flexible, as-needed financing.
- Just-in-Time Funding Needs – Businesses with occasional spikes in capital needs can access cups quickly.
- Startups Seeking Strategic Growth – The incremental nature of cup loans complements calculated expansion plans.
How to Qualify for a Cup Loan Program
Compared to conventional financing, cup loan programs have more flexible eligibility standards regarding time in business, revenue, and credit score minimums. Exact requirements vary by lender but often include:
- Time in Business: As little as 6-12 months. Startups may also qualify.
- Annual Revenue: Some lenders go as low as $30,000 per year.
- Personal Credit Score: Owner/guarantor score around 600+
- Industry: Most non-restricted industries are eligible. High-risk businesses face more scrutiny.
When applying, be prepared to provide typical small business loan documentation like financial statements, business projections and plans, owner information, and use of funds declarations.
READ ALSO: How to Get a Personal Loan With Bad Credit
Where to Find Cup Loan Lenders
Online lenders and alternative financing companies currently dominate cup loan offerings. Top national providers include:
- Kabbage Funding – Offers lines of credit with installment draw periods functioning like cup loans.
- Lendio – Matches borrowers with cup loan lending partners up to $500k.
- Credibility Capital – Cup fund loans from $5k to $250k with flexible repayment over 1-3 years.
- Currency Capital – Cup loans in increments of $2k-$100k+ for working capital and growth.
Many non-bank lenders also offer similar products marketed as “incremental funding,” “segmented financing,” or “milestone-based financing.” Talk to financing advisors in your area to learn about local and regional cup loan programs.
Pros & Cons of Cup Loans
As with any financing, cup loans have both advantages and potential downsides:
Pros:
- Gain access to capital even as a newer startup business
- Avoid paying interest on the entire loan if the full amount is not needed
- Make lower monthly payments by taking less money at once
- Build business credit through on-time repayments
- Align drawdowns with revenue needs and growth plans
Cons:
- Higher interest rates than conventional bank loans
- Required to make repayments on cups even during slow periods
- Possible prepayment penalties for early repayment
- Additional loan fees like origination charges
How Cup Loans Compare to Other Financing Options
Cup loans fill a unique niche between standard term loans, merchant cash advances, and lines of credit:
Term Loans: Require borrowing the entire amount upfront for a set repayment period. Less flexibility than cups.
Lines of Credit: Provide access to a maximum credit limit but require monthly interest payments on full approved amount.
Merchant Cash Advances: Function more like pre-selling future credit card sales, with daily debits and very high repayment costs.
For business owners that only need moderate financing, have fluctuating capital requirements, or want strategic incremental growth, cup loans offer an effective alternative.
Getting the Right Cup Loan Provider
If a cup loan aligns well with your business goals and cash flow needs, find the right lending partner. Here are key considerations:
- Loan terms – Compare interest rates, cup sizes, and repayment periods across lenders
- Qualifications – Choose a lender whose requirements you clearly meet
- Reputation – Read reviews and complaints regarding ease of process, customer service
- Flexibility – Seek out responsive lenders willing to customize loan structures
- Funding speed – Identify providers with the fastest turnaround from application to funding
With the right cup loan program, small business owners can access working capital tailored to their evolving operational needs while pursuing strategic expansion plans. Review multiple financing options, then decide if taking incremental “cups” fits your objectives.
In another related article, Everything You Need to Know About Experian Personal Loans
